President Trump says what he means and means what he says.
Global business leaders would be well advised to believe him when he told those assembled at the World Economic Forum on Jan. 23:
“Come make your product in America, and we will give you among the lowest taxes of any nation on Earth” and added, “but if you don’t make your product in America, which is your prerogative, then, very simply, you will have to pay a tariff.”
On Feb. 1, Trump announced tariffs against China, Canada, and Mexico. Citing the “extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl,” he imposed an additional 10% tariff on all imports from China and 25% tariffs on all imports from Mexico and Canada. Although President Trump granted a temporary reprieve following phone calls with leaders of Mexico and Canada, those tariffs will be implemented in March unless Trump modifies his executive order.
More brinksmanship over trade is on the horizon.
On the first day of his second term, the president ordered national security reviews of bilateral trade relationships and multilateral trade deals. These reports and their findings are due April 1. Potential sectoral and country-specific tariffs are expected thereafter. For China, expect Trump to pursue maximum pressure in the form of further increased tariffs on Chinese imports. Trump will seek as much leverage as he can ahead of potential trade talks with President Xi.
Expect the unexpected in tariff policy.
The business community should hope for the best but plan for the worst as America’s trade deals are revised.
Here are four guideposts for global businesses as they navigate the early months of Trump’s second term:
First, when Trump says, “tariffs are the most beautiful words to me in the dictionary,” believe him.
His philosophy on trade has been consistent going back to his public statements on trade and tariffs amid Japan’s 1980s boom. Business leaders would be wise to onshore as much of their operations as is practical.
Second, the age of globalization and transnational supply chains is ebbing.
When engaging with Trump and his team, business leaders should downplay their defense of globalization and pursue onshoring strategies that allow their companies sufficient time to transition supply chains domestically.
Third, lowering or eliminating bilateral trade deficits is a priority.
Trump continues to focus on America’s trade deficits with countries such as China, Mexico, and Germany. Corporate leaders seeking stability should engage Washington stakeholders and leaders in foreign capitals.
Fourth, trade policy should not be viewed in isolation from the rest of Trump’s pro-growth economic agenda.
The president is determined to extend the 2017 tax cuts for businesses and individuals, reduce regulations on businesses, make the federal permitting system transparent and predictable, and provide a more permissive environment for mergers and acquisitions.
President Trump views his reelection as a mandate for change. He will do everything he can to upend decades of trade and economic orthodoxies. Business leaders should take Trump’s inaugural address and remarks to the World Economic Forum literally and seriously. Together, they offer a roadmap for what to expect from the next four years.
