TRUMP(et) Lessons – How Trumponomics will affect you

Posted on: January 24th, 2017 by Staffan Engstrom

The Presidential Inauguration last Friday struck me like the blast of a hurricane.

America First!’ Trump-eted the USA’s new President, ‘Only America First!’

In just two words he had summed up a whole new era for business. Since the Brexit vote we have heard an extensive new narrative being rehearsed among politicians and media about how populist themes are a blue-collar response to globalisation, leading to the protests of the Brexit vote, the US election result, and the rise of nationalism in Europe.

But the ‘America First’ mantra says this to us all: big time protectionism is back. In the USA it is primarily expressed in a desire for reversing the decline of home-grown industry, whilst in the UK it is largely driven by the desire to curtail immigration. Business is going to have to learn to live with the implications of increasing protectionism for the first time in a generation, but what will they be and how should business respond?

The implications for business

The new President said he would focus on protecting two areas – products and jobs. In effect this means that tariffs are imposed on imports (e.g. by cancelling NAFTA), and restrictions are placed on immigration. These have the following implications on business:

Impact of import tariffs

  1. Cheap imports from foreign suppliers are curtailed.
  2. Competition is reduced, so domestic production increases, creating jobs. 🙂
  3. BUT Domestic production is more expensive than cheap imports, so prices go up. 🙁

Impact of immigration controls

  1. Foreign worker immigration is constrained.
  2. So more jobs go to the incumbent workforce. 🙂
  3. BUT the pool of competent cost-effective labour is reduced, so growth is restrained and costs increase. 🙁

The response of business

There are good and bad consequences, but since this is not a political blog I am going to focus on the response for business (rather than judging the overall merits):

  1. The first priority for domestic businesses must be to exploit the reduction in foreign competitiveness. ‘Don’t look a gift horse in the mouth’ goes the saying. There is market share to be gained, will you be ready?
  2. The second is to innovate, innovate, innovate to deliver compensating lower costs, better productivity, and better competitiveness. ‘Leave no stone unturned’ in mitigating the inevitable. Again, will you be ready?

A starting point could be to take a look at this paper which outlines 27 ways to increase profitability. These are tried and tested measures, most of which I have had deep involvement with, in creating hundreds of millions of pounds in increased sales and reduced costs.