U.S. Economic Nationalism
claim to boost
American wealth and
prosperity, but they
may do long-term
By Katie Siegel
A policy shift toward protectionism could cause massive disruption.
From this day forward, it’s going to be only America first — America first.” This key phrase from President Trump’s inaugural address sums up the various anti-globalization policies he intends to implement as the nation’s 45th president, which include reducing international trade,
rolling back regulation enforcement and restricting immigration — all in the
hopes of making America more economically independent.
But it remains indisputable that globalization has already become entrenched
in the way companies do business. As one of the wealthiest and most powerful
countries in the world, the United States’ economy is inextricably linked to the
rest of the world.
What will economic nationalism look like within U.S. borders if these policies come
to fruition, and what does that mean for risk managers of multinational companies?
TARIFFS, TRADE AND SUPPLY CHAINS
The strategy to bring jobs back to the U.S. is two-pronged: Reduce
international trade through import tariffs and revitalize American manufacturing.
“Import tariffs would be enormously disruptive to supply chains,” said
Bill Reinsch, a distinguished fellow with the Stimson Center, which conducts
nonpartisan policy research.
“The rhetoric we’ve been hearing today shows no understanding of the
complexity of international trade or the complexity of manufacturing,” said Jack
Hampton, professor of business at St. Peter’s University.
“Look at Boeing Corp., with something like 50,000 suppliers. Look at the
automobile industry, and all of the parts that go into making a car.
“Even if you walk into your local barber shop, you’ll look around and notice
how many products in there come from overseas. It’s not just big companies that
will be impacted by trade restrictions. Smaller, local businesses will suffer most.
They’ll have to change their whole model of how they work.”
Imposing high import tariffs and pulling out of international trade agreements
like NAFTA would raise costs and could force companies with global supply chains
to find new vendors. In the short term, extra expenses will be passed on to the
consumer, making everything from computers to cardigans more expensive.
For companies, the search for new suppliers always introduces some risk.
Shortening supply chains and relying primarily on domestic suppliers can reduce
some of that risk, said Louis Gritzo, vice president and manager of research, FM
But, there’s a trade-off in how much capacity a domestic partner can provide
and how fast. Shortening the supply chain must happen at a very well-managed
pace or there will be a capacity issue, Gritzo said.
“A risk manager would be wise to not look at that first or second link, but also
go back to where the chain is anchored to the ground and make sure they are
good all the way back,” he said.
In instances when relying on a foreign supplier is unavoidable, “it’s critical
to make sure you’re working with good business partners,” said Dan Riordan,
president of political risk, credit and bond insurance at XL Catlin.
“Given the changing relationship between the U.S. and the rest of the world,
you have to make sure you can trust your partner to help you navigate changes.
Are there legal protections built into your agreement? Is there a dispute resolution
mechanism, like arbitration? Because otherwise you could end up in a local court
where you may not be treated fairly.”
Trade restrictions could also spark retaliatory measures, limiting potential
markets for U.S. exporters.
“If you have restrictions on trade, it could lead to conflicts, and companies need
to take that into account as they assess the risks of entering different markets,”
A NEW AMERICAN MANUFACTURING
Reduced reliance on international trade calls for a boost in domestic manufacturing.
The promise looks good on paper: more self-reliance and more jobs for American
workers. But the reality holds serious dangers for the U.S. economic growth.
“I think it’s to our advantage
to have thousands of Chinese
students go back to China
every year and take our
Western culture with them.”
— Bill Reinsch, distinguished fellow, Stimson