By Christopher Lewis, head of Global Trade Services, Wells Fargo
The inauguration of President Trump marked a sharp inflection point in U.S. trade with the withdrawal from the Trans-Pacific Partnership on the first day of the new administration. The President also called for renegotiation or withdrawal from the North American Free Trade Act (NAFTA).
While details remain largely unknown, not since the Great Depression has U.S. trade policy signaled such an aggressive shift away from free trade.
Although the future of U.S./global trade is unclear, U.S. companies still have a positive outlook about doing business around the world. In fact, the Wells Fargo 2017 International Business Indicator survey found their optimism for global business is at an all-time high.
The big three: China, Canada, and Mexico
The survey results confirmed U.S. companies are focusing on global expansion to ensure long-term revenue growth. Key components of their international business strategies include emerging markets and foreign exchange. China remains the top hot spot for future growth, followed by Canada and Mexico. China, Canada, and Mexico also have the largest existing trade relationships with the U.S. — equal to $1.9 trillion in imports and exports.*
Vital U.S. trading partners*
Trading with China: Risk and reward
China represents a great opportunity with particular risk. The Chinese government, as with many governments, controls the flow of capital and trade directly through mandates and policies.
Less recognized is China’s willingness to leverage trade for broader political goals and its capability to exert influence through control of the media and public opinion. In one example, Japanese name brands in China suffered a significant downturn through extensive negative media coverage related to a territorial dispute.
While the Chinese government has a general bias toward stability and trade growth, don’t underestimate the need for risk mitigation.
Reasons for a positive outlook
Despite the uncertainty, there’s justification for U.S. companies’ upbeat expectations about their international business this year:
- Diversification of the global economy. For decades, China has been the manufacturer to the world. However, with rising labor costs, production is shifting to other areas of Asia. Additionally, the Chinese economy is increasingly consumption-oriented. These shifts increase international trade activity and economic growth globally, creating new markets and new opportunities for U.S. companies.
- Change brings opportunity. Policy debates in the U.S. and globally are not about stopping global trade; they’re about changing the rules. Change creates winners and losers. At this time, with few knowns except an overall bias toward aggressive growth, businesses are hopeful and believe they can be winners. Once the unknowns are resolved, expect more variability in the level of optimism across businesses.
Future of trade
For business leaders, international trade is core to the U.S. economy and to their bottom lines. Businesses are not looking to withdraw from the global economy — there’s no shift in fundamentals. However, some companies are leveraging current events to influence how international trade will look in the future. As a result, change is on the horizon.
Under such uncertainty, a key business support will be in-country trade finance expertise on both sides of a transaction to understand and negotiate the dynamics of change. Local resources actively connected through a global network can navigate the unknowns, mitigate risk, and open up opportunities.
* Wells Fargo 2017 International Business Indicator, “Global business optimism surges amid trade uncertainty,” April 2017.