Back in June, I wrote an article that sought to discuss why Brexit could have a positive impact on UK and global trade and foreign direct investment (FDI) flows. While not personally being convinced, the exercise at least showed there are credible arguments on both sides. It’s now appropriate to repeat this for the US election.
The rhetoric of the election went far beyond that of Brexit, but if we try to move beyond this, what might be the future for trade and investment? During the campaign, it was trade more than investment in the spotlight, but they are inextricably linked. A protectionist agenda would normally be expected to have a negative effect on both, (whether this may actually have a positive or negative effect on employment in the US is a different discussion). But could President-elect Trump’s approach actually boost trade and investment, in the US and globally?
FDI to the US increasing? - Like the Brexit argument, foreign companies will still want a presence in such a major markets, therefore those that previously chose Canada or Mexico, would now need to have a direct presence in the US. Moreover, with a President who is unambiguously a businessman before he is a politician, will the US become an even more attractive place to do business? Whether increasing FDI will help to address manufacturing underemployment across the country is less clear, given the structural issues around skills that exist.
FDI from the US increasing? - One commentator suggests a trade war would force US firms to establish a presence overseas. Hence investment replaces exports as a way to do business. The difficulty here is that for SMEs, exporting is a often precursor to investment. If a company is now not in a position to export, it’s unlikely that they will instead make the risky and expensive decision to directly invest.
A boost to global fair trade? - There has a long been an argument that the terms of trade are weighted against poorer nations. So there is some irony that the most powerful country in the world is the one to highlight the unequal distribution of benefits from trade. The Fair Trade initiative has sought to address the issue in developing countries, but perhaps a reform of US terms of trade could prompt positive global reforms?
Economic developers to the forefront - If we accept that Trump’s victory was more than anything, on a platform of creating jobs, the role of economic developers may become all the more important. A positive increase in the prominence (and possibly budget) of US Economic Development Organizations (EDOs), at all levels of geography, could stimulate both domestic and international attraction.
Pragmatism - We have already seen hints that some of Trump’s more notorious campaign statements are softening. A significantly restricted trade and a wider international agenda appears unlikely, as it would directly affect Trump’s own business interests. His hotel and golf resorts, both in the US attracting overseas tourists and those he owns overseas, are just one example. There is a similar argument for the USA as a whole, given foreign firms in the US employ 6.4 million Americans. The same argument applies to immigration policy: in 2014, as a region the Middle East spent $8.3bn on travel and tourism in the US. A daily flight from Dubai to Orlando alone is estimated to generate $100m annually. With this scale of economic impact, continued pragmatism appears a likely outcome.
Only time will tell how this election changes the dynamics of trade and investment. Perhaps changes will be profound, but equally they could be minimal. This is where the “Brexit times five” comparison falls down – in that example the vote will directly result in a specific change to the UK’s global positioning, and the government is tasked with implementation. But in the US election, the vote was not for a single piece of legislation: the US government is free to define its policy across a wider spectrum of choices, and only then set about implementation.