A recent White House executive order remove the U.S. from the Trans-Pacific Partnership, and there is a promise from that same administration to renegotiate the North American Free Trade Agreement, One perspective is that the U.S. is on an isolationist trade policy path with an “America First” campaign. The White House has also signaled placing tariffs on other countries such as Canada and China, further confirming this move toward slowing down imports with the intent of favoring and rebuilding the U.S. industry and manufacturing sectors, all while running the risk of sparking trade wars and losing ground to China in the Pacific, Middle East, and Africa.
These U.S. policies and proposed actions have a striking resemblance to isolation trade policy and the Import Substitution Industrialization (ISI) policies that Latin America attempted in the 1950s-70s with very little success. Those policies tried in Latin America took on a much more Marxist and government intervention theme versus what the U.S. is doing, but the general concept is similar.
If tariffs are placed on incoming imports that isolate an economy while the country focuses on internal investment, the nation may be able to industrialize their own industries and establish production where imports generally were the only option. These policies did have some success and are not completely invalid, but were found to be unsustainable and inefficient as they are running against free market economics and the general trend of the global economy (Baer, 1972 - below). In the U.S. the difference would be to rebuild already pre-established industries as opposed to developing new industries all together.
Whether policies like this are effective and are what America needs today is irrelevant. What matters is understanding what this means for your corporation and how to make the best of a difficult situation - but with endless opportunities worldwide.
Given these circumstances there are some key strategies your company could take depending on your individual industry.
- Build a strong global network. As with almost any global strategy, networking is quite possibly the first and most important step to success. This is an easy one to tackle... join Global Chamber® to grow globally and build a network in 525 metro areas - everywhere!
- Maintain and build robust domestic operations and avoid importing into the U.S. if you currently manufacture abroad., rebuilding or invigorating domestic operations to maintain or grow market share within the U.S. may be a vital step to take. This will ensure that even though importing some products into the U.S. may not be economically viable due to potential tariffs, the U.S. market will be secured. Ensure that if you are importing into the U.S. that there are not any additional costs due to tariffs. Instead of exporting from the U.S. or importing into the U.S., consider exporting to other nations from abroad and establishing domestic market share at home.
- Establish global operations in your industry to avoid fallout of possible tariffs placed on goods coming from the U.S. in response to U.S. tariffs. If you are not currently manufacturing or producing abroad, consider looking to regional hubs where you could establish operations. From those hubs you can export to other nations and not take on any tariffs that are slapped on the U.S. in retaliation to the U.S. tariffs put on those nations you are exporting to. This is counterintuitive because you should be able to export easily from the U.S. but given that new tariffs may be added on U.S. exports this will need to be considered thoroughly.
And talk to your politicians... tell them about your business needs and have them know that you place business ahead of politics, smart economics versus populist rhetoric.
By Kirk Galster, M.S., Global Advisor, Global Chamber® Salt Lake City
Notes: Baer, W. (1972). Import Substitution and Industrialization in Latin America: Experiences and Interpretations. Latin America Research Review, 7(1), 95-122.