Writer JD Vance, Yale law graduate and author of Hillbilly Elegy, a memoir of growing up in Appalachian poverty, explains what has baffled many around the world – the meteoric rise of Donald Trump – from the perspective of the communities among which Mr Vance himself was raised. “Trump’s candidacy is music to their ears,” he says in an interview, referencing laid-off factory workers and farmers in states such as Ohio and Virginia. “He criticises the factories shipping jobs overseas. His apocalyptic tone matches their lived experiences on the ground.”
Many argue that these voters would be voting against their own economic interests. Certainly those in the financial world broadly admonish the Republican presidential candidate’s threats to “tear up” the North American Free Trade Agreement and impose steep tariffs on imported goods, among other things. And while not nearly as anti-globalisation in tone as Mr Trump, democratic nominee Hillary Clinton has turned her back on the Trans-Pacific Partnership (TPP), a deal lauded by international business leaders and one she previously championed. Erstwhile Democratic contender Bernie Sanders drove much of his campaign by railing against free-trade deals, gaining a tremendous following that still haunts the Democrats’ party unity.
Foreign investors and others operating in financial markets are axiomatically in favour of the free flow of goods, people and capital. Recent political volte-faces such as the UK voting to leave the EU and the populist wave that elected Mr Trump to the candidacy, exposing widespread discontent with the status quo and a paradigm shift inward, appear a direct threat to this.
A global trade slump
According to Global Trade Alert, which monitors protectionism around the world, global trade volumes have stagnated since January 2015. In July, the WTO reported the highest levels of trade-restrictive measures implemented by member states since 2011. WTO director-general Roberto Azevêdo urged members to resist protectionism, saying: “This increase could have a further chilling effect on trade flows, with knock-on effects for economic growth and job creation.”
US secretary of commerce Penny Pritzker agrees. The US received $380bn in FDI in 2015, and remains a leading global FDI destination. Asked if she saw this year’s campaign rhetoric as threatening, she told fDi: “I think there’s a big risk. And it is due to not understanding how integrated our companies and the jobs they create are on goods and services that come from overseas.” She cites American watchmaker Shinola, which creates jobs at its Detroit plant but relies on parts from Switzerland, as one of many such cases.
“Both candidates are clearly reacting to the heartfelt frustration of a significant percentage of Americans who were deeply hurt by the recession and have failed to participate in the recovery,” says Michael Camunez, CEO of Los Angeles-based legal advisory firm ManattJones Global Strategies. But to diagnose globalisation as the disease and protectionism as the cure is wrong, he argues.
“Trade agreements are not in themselves responsible for the underlying forces of globalisation and technology; rather they provide the legal framework that ensures all trading partners play on a level field,” he says. Indeed, the US’s biggest trade deficit is with China, with whom it has no free-trade agreement.
“As leaders we must do a better job of explaining that while some jobs might be affected negatively by trade, many more are positively affected by this free flow,” says Ms Pritzker. “And regarding TPP, it is really dangerous to not allow American companies equal access to the fastest growing marketplace in the world. The long-term position of US businesses around the world is at risk.”
While heated rhetoric is common during an election year in the US, its growing intensity worries investment experts such as Nancy McLernon, president and CEO of the Organization for International Investment, which represents the US subsidiaries of global companies.
“It’s the worst environment we’ve seen for anything global,” she says. “The current political discourse is causing more concern than [anything] I've seen in 15 years. You don’t have anybody at the top of the ticket promoting engagement in the global economy. This isn’t a phenomenon in just the US – we see this happening around the world, and crossborder investment is an aspect of the global economy that’s often not focused on.”
The value of crossborder investment rivals that of trade, she stresses, citing the 24 million US jobs that rely on FDI. “These are the jobs we need more of, but what’s missing is the connection between that and the policies to pursue to get more of them.”
On a recent trip to Asia, Ms McLernon noted a number of Japanese and South Korean companies with major investments in the US “waiting and watching” to see which direction the country takes. “These are companies that have an enormous amount of employment in the US, and they want to see it lean in on the global economy, rather than pull out,” she says.
Companies from countries represented in the TPP and the Transatlantic Trade and Investment Partnership (TTIP), current major agreements the US is pursuing and the former of which both Mr Trump and Ms Clinton claim to oppose, represent 90% of US inward FDI. “These agreements will have a big impact on our ability to attract more of those companies’ investments,” says Ms McLernon. “With the TPP right now not getting a lot of positive press, that worries folks.”
Chicago-based global management consulting firm AT Kearney’s FDI Confidence Index, published yearly, placed the US at the top of its list for the fourth consecutive year for 2016. Yet its January survey of international investors reported that the election of a populist president would “decrease the number of those wanting to increase their FDI into the US by 13%, while raising by 8% the number of firms aiming to decrease investment”, says Erik Peterson, a partner at AT Kearney. And in the firm’s View from the C-Suite Confidence Index published in April, Mr Peterson describes “an overwhelming 83% of executives believed the elections would be somewhat or very important to what happens in the US until 2026. So it’s not just rhetoric to them – this is clear evidence of growing international concern.”
The power of perception
At the same time, no investor can deny the inherent attractiveness of the enormous US consumer market, with its transparency and rule of law, highly skilled human talent pool, robust diversified sectors and unique legacy of innovation. International investors of all stripes told fDi at the 2016 SelectUSA Investment Summit in June that they intended to continue expanding into the US regardless of the election result.
“What I believe is that information moves perception,” says Ms McLernon. “And if we have people understand that the very jobs they need are directly tied to global investment in the US, I think that will move perception. That is why it is so important for us to tell that narrative.”
The American electorate has made clear its desire to see palpable economic results, voicing their demands for a candidate of action. Investors watch with concern and bated breath, offering their detailed calculations and projections. But their well-intentioned analyses face being drowned out by the economic experiences of struggling Americans across party lines.
The election’s fate may ultimately lie in the hands of those that JD Vance speaks about: the disenchanted voters spread across the once-booming counties of battleground states such as Pennsylvania and Ohio. These states will prove critical come November.