What Trump’s Victory Could Mean for US Companies Operating Abroad
By Stephen Chipman, CEO, Radius
Donald Trump’s surprising, sound victory over Hillary Clinton in the US presidential election means many things to many people. Much has been made, for example, of the parallels between Trump’s rise to prominence (and now win) and the success of the Brexit referendum. Both victories reflect a global trend towards populism and protectionism — a drift away from globalization — particularly on the part of working-class voters in rural areas who feel disenfranchised. Both political upheavals caused and will certainly continue to cause global economic volatility.
Based on Trump’s platform and the calls of his supporters, here are a few brief takes on what his coming presidency might mean for US multinationals.
Trump consistently engaged in anti-immigrant rhetoric during his campaign, famously pledging to build a wall on the US-Mexican border and ban Muslims from entering the US. Of course, stricter US immigration laws won’t directly affect US businesses’ ability to send workers abroad. However, should stricter laws further limit scarce talent like high-tech workers from entering the US, then talent pools abroad will widen correspondingly, potentially making global expansion more attractive to US businesses that want to tap into those pools.
Trump’s “America first” rhetoric — including his skepticism of NATO’s value and his threats to make allies pay for military protection — have a clear potential to foment global anti-American sentiment, even (or especially) in countries that have been traditional US supporters. This sentiment may make overseas assignments less attractive to employees of US companies, and US multinationals would do well to update their policies and procedures to account for this possibility.
Trump has, according to the Chicago Tribune, “threatened to penalize US firms that shift jobs abroad.” Presumably these penalties would come primarily in the form of tariffs and corporate taxes. Even in the face of this threat, the prospect of establishing overseas offices may theoretically become more appealing during Trump’s presidency. Overseas operations will represent a means of tapping into overseas markets while potentially avoiding trade barriers. This kind of strategy is perhaps best exemplified by Japanese companies such as Honda that have established manufacturing plants in the US that employ US workers and skirt tariffs.
As Brexit did not change the underlying fundamentals of the UK, the Trump presidency is unlikely to change the underlying economic and market forces that will continue to drive overseas expansion and globalization. As I mentioned in a recent article in Amex Open Forum, the great majority of consumers and capital are outside US borders. I’m confident that fact will in the end not be lost on Trump and his advisors.
In his first presidential debate, Trump called the North American Free Trade Agreement (NAFTA) “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.” He has vowed to rewrite or walk away from that and the Trans Pacific Partnership, which has been championed by President Obama as a means of giving the US economy a “leg up” on its competitors, most notably China.
As a Reuters piece published yesterday points out, “Trump has argued that international trade deals hurt US workers and the country's competitiveness, but it is not clear to what extent Trump the president will resemble Trump the campaigner.” An expert in the Chicago Tribune article I quoted earlier notes that “Trump cannot tear up existing trade deals, but concluding new ones ‘will be significantly more difficult.’” Another expert is quoted as saying that Trump “is off to a bad start in terms of engendering trust and confidence of US allies and partners.”
Again, the initial reaction to Trump’s presidency as reported in the news and in my own conversations is strongly reminiscent of much of the commentary following the Brexit vote, particularly with regard to cross-border trade. As with Brexit, the US can hardly afford to significantly shut its borders to trade. We have seen the effects on world financial and currency markets on the perceived prospect of either a severe or amicable UK break from the EU, as when the pound plunged following hints from Prime Minister Theresa May about a hard Brexit. Similar fluctuations are inevitable as president-elect Trump’s trade plans evolve. Savvy companies will as ever monitor these changes and pounce on opportunities as they arise.