Possible Outcomes for International Trade During a Trump Presidency

Uncertainty always has a negative impact on the market, and one positive outcome that has come of last night’s American election results is that at least the uncertainty over who will be seated in the highest office of the United States is finally over. While political pundits cited Trump’s “blue collar” and “working class” supporters as key components of his victory, he was less popular than Clinton with the one-third of American voters who earn under $50,000 a year. Instead, Trump slid into office thanks to the upper and middle classes. Of these, the more globally minded might wonder how international trade will fare during a Trump presidency – a question to which many economists have already attempted to answer.

 

Trump has laid out few concrete policies over the duration of his campaign, but an enduring theme has been his vow to build a wall between the United States and Mexico, and to make Mexico pay for it. However, Mexican President Enrique Peña Nieto has been unequivocal about his government’s refusal to finance the construction of a border wall. The workaround many economists predict Trump will resort to involves levying high tariffs on the importation of Mexican goods, thereby forcing Mexican citizens to pay for the wall indirectly.

 

The President-Elect has also vowed, in no uncertain words, to tear up the current terms of the North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico that has ensured peaceable economic relations between the three world powers for over two decades. His disdain for NAFTA was made abundantly clear by repeated references to the agreement as a “disaster,” and he promised to re-negotiate its terms if elected. In more drastic interpretations, there’s a chance that his “re-negotiation” would be to do away with NAFTA entirely. While the action would be drastic, the Constitution does grant the President unilateral authority to dissolve any existing trade agreements.

 

David Wilkins, former U.S. ambassador to Canada, seems unconcerned that such a move would ever occur. He has suggested that once Trump takes office, “he’ll realize there are benefits from NAFTA” and reconsider his position, preserving NAFTA in some shape or form. Should the future President decide to scrap the existing three-country trade agreement, one possible alternative outcome might be a bilateral free trade agreement between Canada and the United States, of the sort that existed prior to NAFTA’s ratification in 1994.

 

Auto and aviation manufacturers have expressed concern about Trump’s unforgiving stance toward Mexico, where many of them have production plants. However, top industry experts are as unruffled as Wilkins about the prospects for the future of their trade on the international stage. According to analysts and executives, aviation has traditionally been unweathered by economic developments that would concern other industries. Instead, they insist that as international air travel becomes increasingly more salient to everyday life, business can’t help but grow.

 

Trump said little with direct relevance to international trade in his election night victory speech, but he did swear to uphold “great relations” with foreign nations, assuring his audience that “we will deal fairly with everyone.” Campaign aides and supporters have long extolled Trump’s incomparable business sense and skill in negotiating; now it remains to be seen how those will play out on a global stage.