At its outset, uncertainty is a defining characteristic of the administration of President Donald J. Trump. While past administrations have chosen to disclose or unveil policies in advance through communications with lawmakers, key interest groups and rule-making, Mr. Trump has chosen a more direct approach, one that may prove vexing to risk managers as they try to assess the impact of the administration’s rapid-fire executive orders and policy shifts.
Nowhere are these risks more apparent than in the global markets. In four short weeks, Mr. Trump has withdrawn the United States from the Trans Pacific Partnership, confirmed plans to renegotiate the North American Free Trade Agreement, discussed the implementation of a border adjustment tax and threatened penalties against companies that choose to shift production out of the United States.
With these prospective changes, a cloud of uncertainty has been created because the administration has not offered details about the planned changes. The full impact of these initiatives will not be known for some time and will depend on negotiations among numerous parties and unforeseen future developments.
Of significant concern is how these decisions will affect the global supply chain. During the past 40 years a complex web of trading partners and businesses has developed to manage the flow of raw materials and goods throughout the world. As Lawrence Kurzius, the president and chief executive officer of McCormick & Co., said a few weeks ago in a conference call with financial analysts, there are simply some raw materials that cannot be sourced in the United States.
“A large number of our iconic raw materials are imported products that are grown within a few degrees of the equator, and regardless of what our tax policy is, we’re not going to be able to move the equator, into the United States, so those are going to continue to be imported products,” he said. “And so to the extent that there’s a border adjustment that includes those items, that’s a negative for us ...”
Other business groups, such as the U.S. Chamber of Commerce, have become outspoken about some policies, saying, for example, the U.S. withdrawal from NAFTA would be devastating. Even more concerning would be a shift from such a multilateral agreement to bilateral agreements with Canada and Mexico.
“The last thing North American manufacturers, service providers and farmers need is different sets of rules for trade with the United States, Canada and Mexico,” said Tom Donohue, president of the U.S. Chamber of Commerce. “That could destroy jobs and hobble our industries. That’s why it’s critical to maintain a single agreement.”
Mr. Trump also is fulfilling his promise to address immigration through the now blocked travel ban and stepped-up deportation of individuals residing in the country illegally. Each of these initiatives adds to the uncertainty as businesses contemplate how each may reverberate through supply chains and operations.
It is with this backdrop that many look with hope toward a more business friendly administration, one that has committed to such beneficial initiatives as an investment in U.S. infrastructure, reducing the burden of regulations on industry, tax cuts or even a complete overhaul of the tax code.