A trade war may be triggered by Mr. Trump if he abolishes an existing trade agreement or raises tariffs on imports. This would hurt many U.S. businesses that manufacture components or finished goods overseas and ship them back to the U.S. This is Part 2 of 4 of an initial series of posts on this subject.
Mr. Trump is allowed by U.S. law to impose tariffs of no more than 15 percent for up to 150 days, on all imports, unless a national emergency is declared – in which case tariffs can be imposed for longer periods. Other laws allow the president to impose tariffs on targeted goods. Import tariffs will result in a significant hit to U.S. businesses and consumers who would end up paying more for imported goods purchased in the U.S. as well as goods with significant components that are imported.
A big chunk of the supply chain for manufactured goods is now located internationally – and these supply chains are deeply embedded. Short-term trade wars will do little to reverse the long-term trend towards global supply chains, that are driven by a combination of labor arbitrage, risk management, and environmental regulations but also by the fact that rising incomes and growing middle classes in emerging markets are increasingly important customers for goods produced by U.S. headquartered companies, and businesses often seek proximity to customers.
Consider the price tag of consumer electronics items over the last 25 years. Even ignoring enormous enhancements in features and functionality, the actual sticker prices of equivalent goods have dropped while wages have increased. It is by no means certain that Mr. Trump has the desire to expend political capital on double digit percentage price increases on consumer electronics, automobiles and automotive parts, furniture, building materials, and many other industries that have a direct impact on U.S. consumers’ pocketbooks.
With retaliatory tariffs a foregone conclusion, U.S. exports will also be affected, leading to potential job losses in U.S. manufacturing centers including states that Mr. Trump carried, just as the prices of consumer goods are also trending upwards due to the above mentioned import tariffs. This double whammy is a lose-lose proposition.
Executive Suite Questions:
- What is our exposure to imports from countries that Mr. Trump has vowed to target, including Mexico and Canada (NAFTA), China, Japan, and the South American and Asian countries that are part of the soon to be defunct TPP?
- What percentage of our current and near-term revenues and profits were projected to be derived from exports to these international markets?
- What other locations should we look at for manufacturing and sales growth moving forward?
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.