U.S. companies with interests in Asia and Mexico face uncertainty after the election victory of Donald J. Trump. The surprise victory has several political and security implications due to his stances during the campaign, but there are also specific economic and business implications for U.S. businesses that do business internationally. This is Part 1 of 4 of an initial series of posts on this subject.
Mr. Trump has portrayed U.S. trade deals such as TPP and NAFTA as devastating for American workers and promised his supporters in Midwestern states including Michigan, Wisconsin, Ohio and Pennsylvania that he would bring manufacturing jobs back to the U.S.
Carrier and its parent company United Technologies were derided for their decision to relocate the operations of an Indiana plant to Mexico, reducing 1,400 U.S. jobs. U.S. giants such as Ford, Apple and Boeing have been called upon to reduce their manufacturing footprint in China and to make more of their products in the U.S., and Mr. Trump has promised to tweak the tax code to this effect.
Campaign rhetoric in an election year is often taken with a grain of salt, but the centrality of trade issues and anti-globalization undercurrents to Mr. Trump’s historic victory raises immediate questions about the impact on U.S. business relationships with key trading partners including Canada, Mexico, China and Japan.
If he is unable to renegotiate “a great deal,” Mr. Trump may decide to withdraw from NAFTA with six months’ notice per the provisions of that treaty, although it is unclear whether he can do so without Congressional approval. The TPP is different, since it has yet to receive Congressional approval and therefore can be ended on Mr. Trump’s executive authority.
The President does have significant flexibility in negotiating with trading partners such as China and Mexico. But unlike a boardroom where company executives can threaten to walk away from the negotiating table if the terms are not agreeable, the POTUS usually does not have that option because the stakes involved are more substantial. In the absence of agreement, disputes over trade can escalate into sanctions, or even an all-out trade war.
Negotiations with states are not binary like Mr. Trump’s business deals, where the absence of a deal simply results in no relationship between two parties. Despite the absence of a new agreement between states, trade and political relationships continue to exist, but instead of win-win, the parties may be subject to lose-lose or win-lose scenarios. Thus, diplomacy and compromise will be necessary ingredients in any deals that Trump tries to strike with China, Mexico, and other countries despite “my way or the highway” rhetoric during the election campaign.
In speaking with our contacts at U.S. headquartered companies over the last week, three key questions have emerged across the board. These questions have come up in conversations with business P&L holders as well as leaders within the Strategy and Planning, Corporate Development, and Marketing functions among others.
- What will happen if Mr. Trump fulfills his campaign promise to repeal trade agreements that he believes are unfavorable to U.S. workers’ interests?
- If trade conflicts between the U.S. and China escalate, how will this impact our interests in China?
- How does a reversal in international trade liberalization affect our business in the medium-term?
If you are an executive at a U.S. headquartered company that does business internationally, I am also interested in learning from you the extent to which these questions resonate and your additional questions or concerns.
Timely market intelligence lowers your risk in a fast-changing international environment
The one thing people can agree on with regards to this U.S. election is that the results were surprising. You can avoid blind spots for your business by asking the right questions and sourcing timely market intelligence in support of your corporate function, whether it is Strategy and Planning, Corporate Development, Marketing or others. If you are a business leader with P&L responsibility, the quality of market insights and decision support in this uncertain environment could be a difference between making or missing your targets.