Trump trade war

Going Rogue on Trade

Going Rogue on Trade

There is no justification that allows a government to raise tariff levels based on immigration levels. To take such a step means that the United States has decided that it will no longer bound by international trade rules.  The early commentary on the Mexico decision has been nearly entirely focused on which companies in which sectors will be most at risk from an increase in tariffs by 5% on June 10, with additional increases monthly afterwards until every inbound product faces 25% tariffs by October 1.  Such a damage assessment is important for firms that suddenly awoke to find themselves in the front lines of a new trade conflict that they did not anticipate. But it misses the larger point—everyone is affected by this decision.  It is not just companies that ship goods from Mexico to the United States that should be paying attention.  If the US proceeds down this path, it is the end of the global trade regime that has given stability and lowered risks for an increasingly larger share of companies and consumers since the 1940s. 

How Not to Win a Trade War

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.

Another One-Sided Move on Last Mile Delivery

Another One-Sided Move on Last Mile Delivery

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.