Economist Tells Of 4 Business Issues

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. Although tariffs existed when Donald Trump first entered the White House, they were less than two percent when averaged over all imports.

In that era, when most current business leaders were cutting their teeth, executives could look at a world map and pretty much ignore borders. Costs and reliability of supply was the primary issue when sourcing materials. Sales and marketing decisions did require looking at local rule in foreign countries. But even countries generally hostile to imports, such as India, gradually lowered tariffs and import restrictions.

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 (including me) believe that the shift toward free international trade has made the world, including the U.S., more prosperous, key political blocs disagree.

The shift in attitude occurred in many countries. When the U.S. continued to promote open markets, politicians around the world chose not to argue. But once President Trump started waging trade wars, it was open season on free trade.

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.

Global sales will depend increasingly on various foreign countries’ policies. Marketing decisions cannot take for granted continuation of old tariffs and quota systems. More on-the-ground intelligence (either through company employees or local consultants) will be vital for any expensive marketing effort.

Commodities Differ From Custom Products In International Trade

Products run a spectrum from pure commodities to customized made-to-order goods. The extreme ends of the spectrum illustrate the importance of the concept.

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. Buyers can find other sources, and sellers can find other markets. If tariff disruptions are particularly large relative to the size of the market, it may take a while for alternatives to be developed, but we should be talking months rather than years.

At the other end of the spectrum are products made to order. Apple, 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 at a fab in Phoenix, Arizona. Construction was announced in 2020, with the first production run in 2025. That’s a five-year span from announcement to production. And the time from idea to announcement extends the planning horizon.

In between these extremes are products easily adjusted to customer needs. The important lesson is to consider any potential deal in terms of the time lag between a decision and consummation of the sale.

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. How these changes are handled determine the value of the entire relationship. 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. The old way of doing business will not return immediately, and possibly not ever.

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. Policy is often driven not so much by politicians but by the forces that lead to political success, including public opinion and financial gain.

Products to be bought or sold should be evaluated on the commodity-to-customized spectrum, with understanding of the time and cost of switching suppliers or customers. The best strategy for one product may differ from the best strategy for another product, even if both are part of the same company’s offerings.

It is tempting to prioritize countries by stability of their policy. The United States would have ranked high prior to 2016, and even in 2024. Then President Trump shook the world. That said, some countries do have more stable political regimes than others. Business decisions can reflect the differences without treating them a guaranteed.

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.