International trade will be different after President Trump’s term of office. “It will be more orderly and less chaotic,” according to the Wall Street Journal’s Greg Ip. But, he continues, “The pursuit of liberalized trade and high-minded principles that once drove U.S. trade policy is gone. In its place is an unsteady equilibrium of tariffs and transactional deals.”
Business leaders who sell to foreign countries or buy materials from abroad have to adjust their strategies to the new reality. It’s not here yet, and probably won’t be until 2029, but thinking ahead is vital. Finding alternative suppliers or building mines and factories for domestic production take time. Planning, at least at the conceptual stage, should start now.
More Trade Restrictions Than In Pre-Trump Era
The first key concept is that trade will generally be less free than in the pre-Trump era. In prior years, the direction was clear. The United States reversed the depression-era tariffs by 1950, then continued reducing tariffs in pace with major trading partners. The General Agreement on Trade and Tariffs (created in 1947 by 23 countries) reduced tariffs over several rounds of negotiations, leading to the creation (1995) of the World Trade Organization. The North American Free Trade Agreement (NAFTA) and its successor, the US-Mexico-Canada Agreement (USMCA), opened trade in North America.
In recent years, public opinion has been less favorable toward free trade. Many political leaders believe that openness to international trade hurt workers in the advanced economies, though the evidence is weak. With that attitude, and now the experience of President Trump’s tariffs, countries around the world will feel free to impose tariffs and other trade barriers whenever local politics support that stance.
Local Policies More Important In The Post-Trump World
The major political parties will continue to think of tariffs as tools to support key constituencies. The Republicans have shifted away from a general free-market philosophy. The GOP now supports tariffs to help blue-collar workers. Democrats have, for many years, been hostile to imports that threaten jobs for union workers. Although most economists believe that the shift toward free international trade has made the world, including the U.S., more prosperous, key political blocs disagree.
Corporate buyers setting up long-term relationships need to understand the political forces behind possible tariffs imposed by the U.S., or limitations on sales by foreign governments. Executives need to look product by product rather than in broad terms. Working with trade associations and lobbyists will pay off more than in decades past.
Commodities Differ From Custom Products In International Trade
Products run a spectrum from pure commodities to customized made-to-order goods. A pure commodity has standardized specifications, can be produced in many different countries, and is used in many other countries. Examples include soybeans and cotton, iron ore and steel, and even manufactured products such as copper wire or plastic pipe. If tariffs limit sales from one particular producer to one particular buyer, alternatives are readily open to both sides of the market.
At the other end of the spectrum are products made to order. Apple (AAPL), for example, contracts out the assembly of iPhones, specifying in detail the components to be used and who will supply them as well as manufacturing processes and quality control. Setting up a factory takes time. Apple is having some chips made by Taiwan Semiconductor (TSM) at a fab in Phoenix, Arizona. Construction was announced in 2020, with the first production run in 2025.
Adjustment Costs Must Be Planned For
Once a purchase or sale arrangement is signed on a made-to-order basis, adjustments may be needed. Local tax changes can upend the deal for one or both parties. Regulatory requirements may force the buyer to alter the product specifications or the producer to change the production methods. In either case, one party may lose profitability on the transactions. With a less-certain tariff and regulatory future, international trade will be less attractive.
Strategy For The Post-Trump International Economy
Rolling these four key issues into a business strategy begins with acknowledgement of the change. Simply looking for the cheapest source for materials, or the largest untapped market for a product, won’t work so easily. Investing in political intelligence will be vital for success in international business. Executives in overseas posts must learn local political issues. Trade associations, consultants and local business partners can help. Building connections will pay dividends.
Whether one agrees or disagrees with Donald Trump’s policies, it is clear that he changed the character of international economic relations. The change will last for at least a decade and most likely longer. Adjustment to this reality will be necessary for business success.
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