The speed the sourcing environment’s changing, you’d think this is a good time for a new strategy. You’d be wrong.
No-one knows yet how Britain’s options will develop
On February 1, Britain’s House of Commons voted overwhelmingly to start the Brexit withdrawal process.
Most of the consequent negotiations will probably be over by March 2019. But we’ll know very little about Britain’s subsequent trade relations with its current EU partners until then.
So at Clothesource, we’re advising UK fast fashion clients, who depend on imports from Britain’s neighbours, to start scoping out the practicalities of alternative sources – but not to commit to anything for two years.
But things move faster in the US, don’t they?
After Donald Trump’s clear inauguration “Buy American, Hire American” message, surely US brands and retailers will be see change a lot faster?
I don’t think so. Because, even after dozens of presidential proclamations in the weeks since his inauguration, we’re no wiser now than last October about likely changes to American sourcing rules.
Back then, Donald Trump made four trade-related promises about his first day in office. He’d:
- Announce NAFTA renegotiation. He did – but gave no hint of the renegotiation objectives or timetable almost certainly necessary to make the outcome legally binding
- Announce America’s withdrawal from the Trans-Pacific Partnership. He’s withdrawn – from a deal that wouldn’t have been fully effective for apparel until 2027 at the earliest anyway.
- Direct the Secretary of the Treasury to label China a currency manipulator. The week before his inauguration, he dropped that promise.
- Direct the Secretary of Commerce and U.S. Trade Representative to identify all foreign trading abuses that unfairly impact American workers. No action.
One reason Trump’s not followed up on the last two commitments is that the Senate hadn’t confirmed the appointments of the senior officials who’d receive these directives.
But there are other reasons:
- Trump’s strength is his showman’s genius for delighting his voter base
Trump started 2017 off with a public, tweeted, rebuke to House of Representatives leaders of his own party who had planned to strip an independent ethics committee of its powers. The tweet shamed them into climbing down.
A temporary ban on admission for citizens of seven Muslim-majority country was so sloppily designed the courts overturned it. But, though it infuriated many anti-Trump activists, it directly affected few US citizens, and – like his tweets and other proclamations – may have improved his popularity with his voter base.
- Turning his wishes on trade into detailed laws, though, is a lot tougher
Republicans are increasingly enthusiastic about more “buying American” initiatives. But many of their Congressional team don’t prioritise hitting China and Mexico – which together account for less than a third of America’s imports. They want to use the options called border taxes, which are intended to discourage all imports.
Trump’s tweeted he thinks border taxes are “too complicated”. Retailers like Walmart and JC Penney don’t like them either because they think taxing imports will cause prices to rise and endanger retail jobs.
Financial companies like Bank of America and JP Morgan think their profits will soar as a result, and their Alliance for Competitive Taxation has led the lobbying for the idea.
Walmart – like Nike and Fedex – has now walked out of that Alliance and joined over a hundred companies in launching the Americans for Affordable Products coalition to lobby against border taxes.
Walmart, remember, is America’s largest private employer. Every week almost twice as many Americans shop at Walmart as voted for Trump. Policies that inflate Walmart prices or threaten Walmart jobs hurt Trump voters
- Trump can’t control trade the way he thinks he can control immigration
The US Congressional Research Service recently pointed out that any legislation implementing changes to NAFTA that Trump might renegotiate “would likely require congressional assent.”
Congressional Republicans have also reminded Trump that the law requires him to submit a notice of renegotiation, and his objectives, 90 days before talks start. He’s still not done that..
And now , some Democrats have started demanding even tougher terms from Mexico than the Republicans, labour unions have chimed in and even the Sierra Club has its own list of extra concessions they want from Mexico. Meanwhile, Trump says he only wants to “tweak” the deal with Canada.
What sounded a simple renegotiation is getting so complicated, Democrats have even tabled a House resolution insisting the talks are finished by July 1 – 2018.
Those NAFTA results may not even be implemented before the November 2018 elections.
- China’s even trickier than NAFTA
China sells the US twice as much as Mexico does. It’s the world’s largest importer after the US.
Trump was last heard insisting China’s a currency manipulator – but his Treasury nominee, Steven Mnuchin, disagrees. “Manipulator” has a very precise technical definition, which may not describe China’s behaviour.
Many businesspeople involved daily in trading with China think the Chinese government has far more damaging policies – like quietly subsidising exporters, and straightforwardly harassing importers – that unfairly damage China’s trading partners more than China’s exchange rate.
If you’re serious about dealing with China, you wouldn’t start with obscure and dubious arguments about currency manipulation that might not stand up to judicial scrutiny. But then if you want the 25 million new American jobs the White House is currently committing to you wouldn’t start a trade war with the world’s largest country.
It’s tempting, but pointless, to debate who’d be hurt most in a trade war between the US and China. Both would be hurt.
Developing a strategy for dealing with China that avoids damaging American jobs and corporate profit needs cool judgement, not publicity stunts.
- Governing just isn’t Trump’s strong point
Trump’s first month in office has been – well, interesting.
The intense anger against many of Trump’s policies seems more or less balanced by the support among his voters.
But one of the two most surprising things is how quickly much opinion – among Republicans and Democrats, businesses and unions, and even many outside the US – has swung behind Trump’s “Buy American” policies.
Far more surprising, though, is the complete mess he’s made of turning those policies into action. For someone thought to be bringing a commercial “can do” approach to government, turns out there’s an awful lot he just can’t
Making America’s trade policy friendlier to US job creation is going to take time. There’s a lot of conflicting views to be reconciled, and basic governing skills to be acquired.
Predicting how long that’s going to take is tough
For three reasons
- It will be months before Trump’s direct reports are confirmed, up to speed and fully staffed.
- There’s a real risk of hastily-concocted trade decisions (like a surcharge on imports from Mexico), that will need quick redesigning once America realises their unforeseen consequences.
- Identifying “all foreign trading abuses that unfairly impact American workers” could take forever. There are as many foreign abuses alleged as there are Americans. Deciding which abuses the Administration wants to see abolished, then actually getting them abolished will take at least the whole of any Presidency. Even before time’s allowed for obsessive early morning tweeting
By the time this Administration has a stable menu of trade reforms, we’ll be well into the campaigning season for the US 2020 election.
For the past two decades we’ve had clearly drafted trade rules and adequately scheduled modifications (well, most of the time) on both sides of the Atlantic.
For the next few years, we’ll have to learn to live with poorly drafted rules, abrupt policy changes, ambiguous directions to officials and long periods of uncertainty while governments take longer than they’d promised to take decisions – then change them anyway.
And that’s just in North America. Europe’s trading challenges, as we’ll see in my next summary, will take even longer for governments to turn into policies we can rely on staying stable..
We’ll all be rewriting strategies month after month.