Gregg Wassmansdorf

Despite a strong economy, the US has announced tariffs on aluminium imports from Canada, Mexico and the EU, to the consternation of these countries and the bemusement of observers. Gregg Wassmansdorf ponders the consequences.

I travel a lot as a corporate site selector, so an aeroplane analogy comes readily to mind when thinking about recent US economic policy. Planes can still take off and fly when air is turbulent, but it doesn’t necessarily mean a comfortable flight. So it is with the US economy, which shows strong growth, low unemployment, continuing FDI attraction and early signs of capital repatriation.

Indeed, the US recently topped the AT Kearney Foreign Direct Investment Confidence Index for the sixth year in a row. Yet despite these strengths, the US lurches back, forth and sideways with its policy pronouncements – and has now instigated trade wars that are creating widespread discomfort.

The US has announced a 25% tariff on steel and a 10% tariff on aluminium imported from Canada, Mexico, Japan and the EU. If this is meant to be leverage in the Nafta renegotiations, why include the EU and Japan? If it’s about creating 'fair trade', why target Canada, which is the largest source of imported steel and aluminium for the Americans, but which nevertheless has a trade deficit with the US for these metal products? For anyone doing business in or with the US now, it can be difficult to decide how to proceed.

The recently published ‘Inbound Investment Survey’ by the Organization for International Investment surveyed the chief financial officers of international companies in the US on the health of the business climate for inbound investment. A vast majority of respondents (69%) said US tax reform will have a positive impact on their company in the next one to three years. Within the manufacturing sector, that number climbs to more than three-quarters that responded positively.

If and how this will translate into more US investment is hard to predict, and the US administration isn’t waiting to find out. Rather it is, as one former Canadian trade diplomat has commented, “pillaging the temple of the global trading system”.

The US is clearly using trade policy as a lever to generate more capital repatriation and FDI. If companies can’t sell their products and services into the US from other places then their only alternative (it is assumed) is to produce in the US. This ignores Porter’s theories on the comparative advantage of places, openly challenges the current status of global supply chains, and defies individuals and companies that want to create products and services anywhere else.

Fasten your seat belt – this turbulence is likely to last a while. 

Gregg Wassmansdorf is senior managing director, consulting, at Newmark Knight Frank, a global real estate services firm. He is a member of the Site Selectors Guild. 


This article is sourced from fDi Magazine
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