The result of the US election has implications for businesses around the world. After months of often bitter rhetoric, do we really know what this administration will do?
We are keeping an open mind on how this will play out in the business sphere – the checks and balances in the US political system will moderate the speed and direction of change. Volatility and uncertainty are the “new normal” for organizations operating globally and we are used to taking the long view, monitoring developments and providing calm insight and guidance to our clients as to their best options.
While Donald Trump has promised a number of US policy changes, a great number of them would require specific action by the US Congress. Even with a majority Republican Congress, major policy issues will still require consensus for his agenda to pass. We saw Presidents Obama and Bush facing obstacles to their agenda resulting from opposition from the other side of the aisle. Much will depend on what Trump announces as his initial “100 days agenda”.
Trade
As articulated on the stump and on his campaign website, Trump’s proposals include:
- Withdrawing from the Trans-Pacific Partnership Agreement – After President Elect-Trump’s stated intention to withdraw from the TPP agreement on his first day in office, this agreement is effectively dead. Trump has vowed to pursue bilateral agreements instead of multilateral ones like the TPP, which he continues to call a “disaster.” Without the United States anchoring the TPP, Japan Prime Minister Shinzo Abe has described the agreement as “meaningless.” The US withdrawal also raises the possibility that negotiations on the Regional Comprehensive Economic Partnership (RCEP) will accelerate. The RCEP would comprise Japan, China, and 12 other Asian countries, plus Australia and New Zealand, and has been under negotiation since 2013.
- Renegotiating the North American Free Trade Agreement – He said he would tell NAFTA partners (Canada and Mexico) that he will renegotiate the agreement and threaten to withdraw from the agreement if they do not acquiesce. It is, however, not clear what components of NAFTA he would want to renegotiate, except that he wants to end “Mexico’s one-side backdoor tariff through the VAT” and the “sweatshops in Mexico that undercut US workers.” As president, Trump will indeed have the authority to exit NAFTA and revise tariffs, though the economic impacts could be problematic, including for the American manufacturing workers and consumers he aspires to help. Still, the authority does provide the Trump administration with considerable leverage.
- Trade enforcement – Trump has said he would direct the Commerce Secretary to “identify every violation of trade agreements a foreign country is currently using to harm our workers, and also direct all appropriate agencies to use every tool under American and international law to end these abuses.” In theory, the Commerce Department should already be doing this through its market access and trade remedy functions. While current trade remedy (anti-dumping and countervailing duty) enforcement is robust, there is room for improvement on market access. Here, Commerce, working in tandem with the US Trade Representative’s Office, could play an important role in identifying and substantiating WTO claims.
- China – China is the focus of several of his proposals.
- Currency – Trump intends to designate China as a “currency manipulator.” On its own, a designation will not amount to much, though it will be significant diplomatically. The legislation providing for designations has little in the way of sanctions, which is one of the reasons predecessors have not made such a designation since the 1990s.
- Enforcement – Trump says he will bring trade cases against China, both under US trade remedy laws and before the World Trade Organization. This commitment is consistent with the practices of his two immediate predecessors.
- Trade sanctions – Trump says he will use “every lawful presidential power” to get China to “stop its illegal activities, including its theft of American trade secrets.” He cites sanction authorities (s.201 and s.301 of the 1974 Trade Act and s.232 of the 1962 Trade Expansion Act). However, it is not clear whether he would first wait for WTO dispute settlement determinations before resorting to such sanction powers.
- Trade agency reorganization – Trump has proposed reorganizing government agencies dealing with various components including trade, market access, trade promotion and trade finance. According to Trump, “American trade policy is currently mismanaged by dozens of competing bureaucracies spread across the Departments of Agriculture, Commerce, Labor, State, Treasury, all of these departments, so many departments.” He proposes to create an “America Desk” at Commerce that would regroup components of other agencies. President Obama made a similar proposal that was summarily rejected by relevant Congressional committee chairmen.
- Investment – Press reports indicate that the Trump team plans to have the Committee on Foreign Investment in the United States (CFIUS), the Treasury-coordinated interagency committee that vets foreign investments for national security threats, examine foreign acquisitions of US companies to ensure equal opportunities for American investors abroad. The legislation authorizing the blocking of foreign transactions limits that power to national security threats, and does not authorize requiring investment opportunity reciprocity. However, the CFIUS process is opaque and the scope to challenge decisions limited. This proposal may well also be a harbinger of legislation targeted at Chinese investment given constraints on opportunities for US investors in China.
- Trade sanctions – During the campaign, Trump criticized President Obama’s Iran nuclear deal and the easing of Cuba sanctions. As president, Trump would have the authority to revisit those policies. However, the multilateral Iran deal may prove challenging to unwind. Iran has already received many of the deal’s benefits (e.g., reopening of business with companies from the European Union and other countries in sectors such as energy and shipping). It could be difficult to persuade other parties such as the EU, China and Russia to re-impose sanctions, and re-imposition of unilateral US sanctions might not be deemed effective in discouraging the Iranian nuclear program. Accordingly, the Trump administration may well decide to focus on enforcement of Iran’s commitments, at least at the outset. On Cuba, Trump’s more limited pronouncements seemed to call for the reversal of the Obama administration’s liberalization steps until the Cuban government makes political reforms. That said, it is not clear that Cuba policy will be a priority, at least in the near term. In short, we may need to wait until the confirmation of the new Secretary of State to get a sense of direction on both Iran and Cuba.
Tax
Donald Trump’s tax proposals are focused on individuals and he would repeal the estate tax. On the business side, Donald Trump has announced that he would:
- Lower the business income tax rate to 15%
- Impose a 10% rate on repatriated earnings
- Allow immediate expensing for all new business investments, but only for manufacturers
- Repeal the deduction for interest costs
- Place a “moratorium” on all new federal regulations
In the lame duck session, Congress must fund the government because the continuing resolution expires on December 9. Democrats seek to make several energy tax provisions permanent as part of an extenders package that may be attached to government funding.
Although President Obama may issue a budget in January, it is likely that he will defer to the incoming President. Historically, newly-elected Presidents have informed Congress (by speech or letter) of their economic proposals in February, with a formal budget to follow in the spring.
Employment and Immigration
Our Global Immigration and Mobility team will be closely following any post-election changes to US immigration policy and guidance. We will provide regular updates of policy changes that impact your company and your mobile population. We will continue to support immigration policies that promote a mobile and agile global workforce.
Energy
A Trump Administration promises to be very favorable to hydrocarbons, both in the exploration and production of hydrocarbons and in hydrocarbon use by American industry. Trump has called for an “America First” plan of increased exploitation of US reserves in order to be energy independent from foreign supplies. Trump’s plans call for increased shale gas and oil production, relaxing restrictions on accessing federal lands, and reducing regulations that reduce exploration. Of course, increased production is likely to mean lower prices but Trump has also called for increasing use of natural gas to boost the economy and stabilize prices. Although short on details, Trump policies are very likely to favor US energy companies.
The outlook for renewable energy is uncertain. Although Trump has made some unfavorable comments about renewable energy, he has not released any concrete policies for his administration. As part of corporate income tax reform, Trump has called for eliminating corporate tax breaks, which could include key renewable energy incentives such as the production tax credit and the investment tax credit. Comprehensive corporate tax reform could affect many important tax incentives and the outlook for renewables is not clear. However, the renewable energy business has bipartisan support among influential lawmakers because it creates American jobs in key geographic areas of the country.
There is debate about to what extent Trump could affect the renewable energy industry. Renewable energy is tied in many places to state government policies and has been a reliable source of jobs throughout the country. Currently 29 states have renewable energy portfolio standards that require utilities to use power from renewable sources. There is no evidence that states are moving away from renewables. In fact, New York recently required half of the state’s electricity to come from renewable sources by 2030. Additionally, many corporations have found that it is in their best interest to maintain a corporate sustainability policy. These policies go beyond the benefits of having a ‘green’ reputation among consumers; many companies found that sustainability is a more profitable way to do business.
Any US progress on climate change seems very unlikely under a Trump administration. In addition to backing out of the Paris Climate Change accords, Trump wants to cut regulation of methane gas and scrap regulatory analysis that considers the social cost of climate change.
Mining
One of Donald Trump’s early attacks on Clinton centered on her abandonment of coal miners, with the promise that Trump would bring back coal mining jobs. Although Trump blamed the Obama Administration’s anti-coal policies, the fact is that declining worldwide coal demand has damaged the industry. In order to bring back coal mining jobs it will be necessary to increase the use of coal in industry and power generation. The Obama “Clean Power Plan” package of environmental regulations that threatened to cause significant retirements of older coal-fired power plants may now be at risk. While it may be difficult to roll back those regulations, it is likely the case that a Trump EPA will seek to modify or curtail enforcement of some of the regulations and encourage both power generation and industrial coal use. There are several possibilities for the Clean Power Plan. Currently the Plan is tied up in litigation in the DC Circuit, with analysts predicting it will end up in the Supreme Court. Congress could pass legislation to repeal it entirely, but if not, the rule will have to be rewritten; a potentially multi-year process.
Trump has not focused on other resources production but if his policies for other resources production are consistent with coal, gas and oil, it is likely that US policy will shift to promote the exploration and production of all US resources if it creates American jobs.
Infrastructure
Trump has big plans for US infrastructure under his “America’s Infrastructure First” policy. From roads and bridges, to airports and terminals, to pipelines and export facilities, Trump has promised significant spending and infrastructure-friendly regulators. As an area of agreement among Trump and the political establishment, a new Trump administration may focus on infrastructure spending as an early win on an issue that unifies all sides. Several key Democrats have said that they would work with Trump to create an infrastructure plan, which Trump estimates to be a one trillion dollar investment. Several days ago, a key Trump advisor said that the Trump administration was considering creating an infrastructure bank as a funding mechanism, and several have guessed that he plans on relying heavily on public private partnerships. As other policy positions, there are no details or priorities, so it is not clear which sector will benefit from early infrastructure spending.
There are “Buy American” provisions in some of the existing US infrastructure procurement programs and precedent structures that could limit non-US participation in the Trump infrastructure spending plans. Likely, non-US participation will depend upon the specific infrastructure project and goods and services.
China-US relations
Concerns have been raised about China’s impact on trade, currency, investment, cyber-security and security more broadly during the presidential and congressional elections in the US. The political sensitivities are likely to persist and affect the policies of the new administration and Congress.
- In the trade sphere, there will likely be sustained interest in responding to trade practices that the administration perceives to be unfair such as subsidies, dumping, intellectual property theft, and currency manipulation
- In the investment sphere, there will likely be continued attention to national security implications of foreign investments from China and other countries, and there have been suggestions of a need for Congress to re-evaluate the effectiveness of the current foreign investment regime
- International businesses will need to navigate carefully these political shoals in this contentious context
