Arbitrary or capricious rule changes are a significant danger for foreign firms looking to diversify out of China into other markets in Asia. It certainly does no good to open a new warehouse or building, only to have a regulatory change that renders it unusable or be saddled with new requirements on staffing that drive costs into the red. Most of the markets in the region that are currently expecting to capitalize on the trade war struggle with at least some—and usually all—of these problems. An honest assessment of market conditions in hopeful “winners” could bring about some necessary changes. There is certainly an opportunity for many markets to capture new gains from trade in areas that have not been “in play” for years. But absent some significant improvements in the ease of doing business in a remarkably short period of time, many of the locations that expect a windfall from relocations are likely to be bitterly disappointed.
The United States, of course, is not Australia and has a customer base that is hard to ignore. Marketplaces will likely continue to deliver, despite higher costs, but will pass along these higher postal rates to customers who will pay more. In the meantime, firms will search for alternative markets outside the US to continue to grow their businesses. Governments outside the United States may follow suit and withdraw from the UPU as well, leaving US exporters, including many of the most vibrant global e-commerce vendors, at risk of failing to reach their own customers in fast-growing overseas markets where last mile delivery is always the most challenging part of e-commerce for firms. Withdrawing the United States from the UPU may seem like a small victory for Trump, but the implications and collateral damage it could cause to American consumers and companies alike may be significantly more than the relatively minor amount Trump claims the US Postal service is currently forgoing.
The new paradigm has not been established yet. Kuhn describes a protracted battle that takes place during times of shift as the crisis plays out over what ought to replace the discredited old model. Trump has fired the starting gun on the battle for the future of the global trading system. In his world, the US will draw up the gates and manage with only those favored few bilateral partners that share similar perspectives. The European Union just presented a plan to save the current WTO. But because they have not yet recognized the extent to which we are standing on the precipice of the shift, the plan has already been derided as weak. It tweaks around the edges of the existing system. Canada is holding a conference of “middle powers” next month to brainstorm new ideas. They will need to be bold. In designing a way forward, officials need to recognize that whatever comes in the future will—of necessity—be radically different that the system that we have been comfortable with for more than seven decades.
The implications, as the Singaporean trade minister noted, can be hard to calculate. For instance, American importing companies will need to increase the amount of the continuous bond they hold with US Customs. In some cases, bond levels may be 20-100 times higher than prior to Trump’s tariff wars began. Shipping volumes have fallen off dramatically. This has left firms paying more for transportation as well. So it is not just 25% tariff rate increases that affect firms. The second- and third-order implications are just starting to appear. In the short run, exporting firms have several options to limit risk and exposure to higher tariffs. They can do nothing and bear higher costs, hoping to ride out a short conflict. They can work with their importing partners to effectively “share” the costs of higher tariffs. Firms should be reexamining their options to ensure that they understand their current supply chains, tariff classifications and possible sourcing alternatives. It may be prudent to tweak existing processes to move products into new tariff classifications by, for example, adding or subtracting manufacturing steps in the supply chain from one location to another.
Surprisingly, few Harley Davidson employees – many of whom are Trump supporters – appear disillusioned with the president’s protectionism. “He wouldn’t do it unless it needed to be done, he’s a very smart businessman,” one worker told the Financial Times serenely, encapsulating the “In Trump We Trust” attitude that persists among many in the President’s base. Many workers were, in fact, apparently quick to point an accusing finger at the EU and even Harley Davidson itself for leaving its traditional base in Wisconsin. They are resolutely defending Trump’s claim to be “just trying to save the US aluminum and steel industry” from the unfair trade practices of foreign countries. Other US presidents would surely have been crucified for less. Trade experts predicting that protectionism would threaten US jobs have been vindicated by Harley Davidson’s pull-out. Working class Trump supporters have the most to lose. Why then do American workers continue to support Trump’s flawed protectionism? It would be easy to dismiss Trump supporters as unwise or easily deceived. Yet, this would merely trivialize a more serious problem plaguing trade politics today. Caught up in a wave of identity politics, how a policy actually affects the US economy is now arguably less important to voters than who is actually articulating it.