Your Choice: How their policies could impact the business climate for housewares

Clinton said she would appoint a new “trade prosecutor” in an effort to keep other countries honest and also work to deal with those nations that keep their goods artificially cheap by manipulating their currencies. In addition, she opposes China’s efforts to be recognized as a “market economy,” which she said would negatively impact current anti-dumping laws.

Regarding new trade agreements, the Democratic nominee said she would reject those, including the TPP, unless they create new American jobs, raise wages and improve national security. She opposes the TPP because of its rules on currency manipulation and its “weak” rules of origin standard for what counts as a car that can get treaty benefits.

Clinton also said she supports the efforts of small and large businesses to tap new markets globally as part of her effort to support good paying jobs and also spur economic growth. She is also backing the Export-Import Bank, which serves as the official export credit agency of the United States.

Insight:
While there has been much talk about trade, and more specifically trade agreements such as TPP, Wharton’s Nichols noted the importance of trade negotiations done in secrecy, with the endgame being that things will get better for all parties involved, rather than just the “grabbiest” party.

Nichols does feel Clinton offers more specifics related to trade and levels criticisms at trade deals on the basis of specific aspects such as environment and labor that go along with trade rather than just trade itself.

As a result, he believes that ongoing trade negotiations such as TPP would stop and there would be a reset. Whether or not that reset would be successful remains to be seen.

PIIE’s Hufbauer added that Clinton’s message is that the country is not going to do new deals and will not unwind existing relationships. But, he wonders how long she will stay with this mindset if elected president.

He noted that the former secretary of state has an “expansive geopolitical view” of world relationships, but her trade policy is not consistent with her geopolitics.

“The inconsistency is so strong that she would have to rebrand but go back to familiar policies almost right away,” he said.

For American-based companies that import product from countries included in TPP, Hufbauer said they should be more concerned about Clinton’s proposals that focus on tax rates and how far she will push the minimum wage issue.

Moody’s noted that as the campaign has moved along, Clinton has become more ambivalent about global trade, pointing to her opposition to TPP.

Failure of the TPP to become law alone would have little impact on the U.S. economy, Moody’s wrote. However, if its failure to become law signals a slowing or end to globalization, then it would eventually weigh on the nation’s economic growth.

Regarding TPP, Moody’s said if the deal fails to become law, it is possible that it could be renegotiated to include stronger language around labor laws and human rights, topics that Clinton has argued for. In addition, Moody’s is also assuming that there will be no material change in previous trade deals including the North American Free Trade Agreement and the World Trade Organization-based relationship with China.

Trade
Candidate’s Proposal:
After his positions on immigration, Trump’s positions on trade must be regarded as the signature policy initiatives of his campaign. He has called for the appointment of trade negotiators whose goal will be to win for the U.S. by gaining terms that will narrow the trade deficit, increase domestic production and achieve a fair deal for American workers.

Trump envisions renegotiating the North American Free Trade Agreement, withdrawing from the Trans Pacific Partnership, aggressively taking relief cases to the World Trade Organization and labeling China as a currency manipulator to a step toward quickly setting up tariffs against imports from the country. The Trump campaign signaled an intention to apply tariffs and duties to countries that the candidate believes cheat on agreements and other conditions regarding trade and direct the Commerce Department to use all legal tools available in response to trade violations.

In establishing its criteria for making major changes to trade agreements and policy, the Trump campaign cited a deficit in goods at a value of $800 billion on an annual basis. As a result, American workers have suffered because good-paying manufacturing jobs have become scarcer, the campaign stated, asserting, as an example of the pain created, that only half of the population 25 and older without a high school diploma is in the workforce.

Insight:
Even if Trump trade policies are implemented in a limited manner to key targets, with 35% to 45% tariffs imposed on Chinese and Mexican imports beginning in mid-2017, Moody’s anticipates that it could cause a recession to take hold by early 2018 with a 2.4% decline in gross domestic product. The predicted length of the economic downturn, proceeding into 2020, would be unusually lengthy. Even before recessionary effect, a 45% tariff on goods from China and 35% tariff on goods from Mexico would increase consumer prices by 3%.

Expected trade retaliation from China and Mexico also would have an effect. Although imports from China total about $500 billion and those from Mexico total about $300 billion, exports from the U.S. to China total about $100 billion and those to Mexico total about $250 billion, according to Moody’s, which predicts that retaliation and a stronger U.S. dollar that would result from economic uncertainty could cut U.S. real exports by $85 billion.

Wharton’s Nichols said that, no matter what actions taken in response to Trump’s trade moves, many industries suffer paralysis because executives would have to defer investment until the consequences of any actions become clear. Uncertainty would disrupt economic activity, at least initially, and that would set in at the moment of a Trump election.

Moody’s pointed out that it’s unlikely for a Trump administration to get its economic policies enacted into law wholesale, and Congress and the courts have some power to affect even those actions the administration could launch on its own.

However, Nichols noted, trade negotiations are complex and difficult, and the negotiating acumen accumulated in the private sector might not translate into the international political realm. Any negotiations that occur might prove more difficult and lengthy than the Trump campaign anticipates, which could exacerbate the effect of uncertainty and dampen investment.

Wharton’s Guillen pointed out that just because Trump wants to renegotiate agreements, particularly NAFTA, the other parties might not be willing to participate. This would force the country to back off or act arbitrarily, which, considering that Canada and Mexico are the two of the top three trading partners the U.S. has, would produce even more uncertainty and disruption.