As president-elect Donald Trump continues both announcing and trial-floating names for cabinet and other government positions, an important question remains. What will be the new administration’s position on trade?
Currently two approaches are being discussed that, at first blush, seem diametrically opposed.Related: 2016 LIKELY TO BE RECORD YEAR FOR M&A
Tariff Or Tradition
On the one hand, Trump has spoken often about what he considers the basic unfairness of U.S. trade agreements. This approach rejects mainstream economic thinking in favor of trying to eliminate trade deficits as the main goal of U.S. policy.
The tariff plan suggests the U.S. should enact high tariffs on foreign companies wishing to export to America as well as punishing taxes on companies that elect to move jobs overseas.
The more traditional approach, currently centered around vice president-elect Mike Pence, favors supply-side economics and dismisses the hardline tariff position which traditionalists see as “win-lose” versus a more desirable “win-win” line of thinking.
No Winner Yet
So far there has been no strong indication that one approach will ultimately win out over the other. In fact, many experts suggest U.S. trade policy may reflect a mixture of tactics.
Trump economic adviser, Stephen Moore said, “There will be a balancing act. There’s going to be some disagreements even within the administration about what should be the priority…I don’t know how that will all come down.”
That said, many observers believe Trump’s announcement that he would nominate Sen. Jeff Sessions as attorney general was a signal that a tighter trade restrictions may have the upper hand. Sessions has long been a proponent both trade restrictions and a tightening of immigration rules.
Two Affected Industries
Meanwhile, as the fledgling Trump administration attempts to sort out a trade philosophy moving forward, the uncertainty created has sent earthquake-like tremors through industries that count on open trade for their very existence.
Jerrold Lundquist, managing director of The Lundquist Group said, “People are in shock. It seems commentators misread the mood of the country.” As tension builds, two industries that are in major turmoil are automakers and airlines.
Auto Industry Only Cautiously Concerned
U.S. automakers, which all have production sites in Mexico, are concerned about Trump’s free trade stance. Ford Motor Co. (NYSE:FD) President and CEO Mark Fields noted that a tariff on imports from Mexico “could have a huge impact on the U.S. economy.”
On the other hand, automakers in general say they are global entities and that they don’t base decisions on changes in what they call “regional politics.”
Tariffs, of course, are only one part of the picture. The Alliance of Automobile Manufacturers told the Trump transition team that president-elect Trump should move quickly to “harmonize and adjust” tough gas mileage rules that “pose a substantial challenge to the auto sector due to the steeper compliance requirements for model years 2017-25.”
Airlines Not Too Worried
According to IATA, International trips make up 64% of global air traffic. That’s a significant piece of air travel but that does not seem to be a huge concern to airline executives who say the industry has a history of riding out economic and political shocks.
In addition, trade restrictions are one thing but a potential increase in military spending could be a huge boost for companies like Boeing Co. (NYSE:BAC) that count on defense contracts as a large part of their bottom line.
President Calls For Calm
Outgoing U.S. President Barack Obama said he did not expect major changes in U.S. policy, especially toward Latin America. "Don't just assume the worst,” Obama said, “Wait until the new administration is in place, is putting its policies forward, and then you can make your own judgments."
Obama said he did not believe Donald Trump would tear up trade deals once he looks at them in detail and sees that they are working both for the U.S. and its partners around the world.