The prospect of a Donald Trump presidency began to sink in as U.S. citizens went to bed last night. Today, U.S. citizens, and citizens and leaders of other countries, are coming to terms with a future involving President-elect Trump.
In addressing what he called “the world community” during his acceptance speech early today, Trump said that “while we will always put America’s interests first, we will deal fairly with everyone ... all people and all other nations. We will seek common ground, not hostility; partnership, not conflict.”
Nonetheless, central facets of Trump’s campaign were vows to build a wall along the border with Mexico, deport millions of Hispanic immigrants, dismantle the North American Free Trade Agreement and begin a trade war with Mexico. The impact of such actions—if they are to actually take place—on the automotive industry, for example, would be significant. Nissan, General Motors, Fiat Chrysler Automobiles NV, Volkswagen AG, Ford and Mazda all build small cars in Mexico—and have plans for business expansion there.
Ford, in particular, has drawn Trump’s ire on the campaign trail. In September, Ford Chief Executive Officer Mark Fields announced that all of the company’s small-car production will be leaving U.S. plants and heading to lower-cost Mexico. On the campaign trail, Trump repeatedly criticized Ford’s investments in Mexico, and vowed that he would impose a 35 percent import tariff on any cars built in Mexico that Ford tries to sell in the U.S. It wasn’t surprising then, that immediately after Ford’s September announcement, Trump said in a statement that “These ridiculous, job-crushing transactions will not happen when I am president.”
The auto industry presumes that any tariff imposed on Ford will apply to all carmakers. Although permanent tariffs require congressional approval, a president can impose them unilaterally to protect domestic industries from unfair behavior by a foreign country, Donald Grimes, an economist at the Institute for Research on Labor, Employment and the Economy at the University of Michigan, says in a Bloomberg article today. Indeed, President George W. Bush took such action on imported steel, he remembers.
“Trump could impose a large tariff on vehicles and parts coming in from Mexico,” Grimes said before the election, Bloomberg reports. “This would clearly hurt the profitability of the auto industry in the short run. The companies would respond to those tariffs by moving the location of plants that mostly export to the U.S. to other countries, such as Vietnam and China. The plants would not return to the U.S. There are just too many other low-labor cost countries around the world.”
Trump hasn’t just taken aim at the automotive industry. Throughout his presidential campaign, Trump vowed to revive the U.S. economy by cutting taxes, preventing companies from making products overseas, renegotiating trade accords and imposing tariffs on imports from countries such as China. Trump’s presidential victory has consequently sent a shock through industries which rely on open trade. However, trade experts say it remains unclear how Trump’s statements in favor of protectionist trade measures and tough immigration controls could translate into policy.
“The honest answer is that no one knows; even Trump himself doesn’t know,” Bertrand Grabowski, a managing director at Germany’s DVB Bank (which specializes in financing trade), says in a Reuters article today. “He campaigned not on ideas but on anger and frustration.”
Tighter rules could even impact Indian IT services firms supporting U.S. companies. Shares in companies including Infosys and Tata Consultancy Services were sharply down as Trump closed in on his presidential victory. That said, Narayana Murthy, co-founder of Infosys and a key figure in India’s outsourcing industry, says realism will prevail.
“They may fine tune it here and there, but let’s remember that [Trump] is the president of 300 million U.S. people and I’m sure he’ll do what is in the best interest of America,” Murthy says, Reuters reports. “And what is in the best interest of America is for its corporations to succeed, for its corporations to create more jobs.”
What are your thoughts on the impact President-elect Trump will have on industry? Will he, as promised, move to dismantle the North American Free Trade Agreement?