In the second part of Global financeThe conversation with former American secretary for trade Wilbur Ross – who served during the first term of President Trump – the discussion moves to the impact of Trump’s prices and trade policy on CEOs, financial directors and the main business partners such as Canada, Mexico and India.
Global finance: What would you recommend to CEOs and CFOS who sail on this climate of uncertainty due to American prices and commercial policy when they determine their strategies near and long-term?
Wilbur Ross: Yes, reshaping and narration were things that would develop momentum anyway. President Trump will speed up this.
Whatever the plan people had to move production, it would be wise to accelerate it. Now that it means to move operations in Mexico or the United States, that’s another question. But the days when a business could make a component in one country, a second in another, and a third in another another – then bring them to a fourth country for the Assembly – end.
Therefore, it should be more about the measure to what extent you move the installations and to do it or not, and to a certain extent to move them. The rules of origin will be much more important for Canada, but in particular for Mexico than before. So, as long as we integrate this into their reflection, I think that relocation is the wise decision to make.
Girlfriend: Is the message different for CEOs and CFOs outside the United States?
Ross: Yes, it could be if they adopt policies similar to those of Trump. We are heading for a time when what has been called “protectionism” becomes much more a centerpiece of everyone’s trade policy. But what Europe must do to be effective is to deregulate some. The regulatory burden that European governments impose on their business is a real obstacle to relocation. Europe has become too intrusive in the business world.
Trump also said that he would force his cabinet members to cancel an even higher ratio of existing regulations compared to all the new ones they are implementing, higher than what we had the first time. The first time you had to cancel two for everyone you put. It can push up to eight, but certainly more than two. This is one thing.
Tax policy is the other. You have to look at Trump’s commercial activities in the context of what he does overall. Between deregulation and reduction of corporate taxes, it changes the economic attractiveness of being in the United States, whatever the prices. And then when you charge in addition to this, a slightly more robust price policy, you have a combination of factors that will prove to be very powerful.
Girlfriend: Which means that you also think that it will be the result of the current situation?
Ross: Okay, well, there will naturally be a gap. You cannot build a new installation of any size in 10 minutes. There can be a short -term dislocation because we are faced with higher prices, but we do not yet have increased production to compensate them.
Now this is not a universal problem. Many of our industries only operate at a capacity of 70 to 80%. Therefore, not only will they be able to meet increased demand, but this will also help them absorb part of the price on imported components. When production increases by 70 or 80%, marginal costs are very low. You will have this factor and probably another factor: the readjustment of the crown. The way this takes place will have a significant impact on how industries behave in the world in each field.
To this end, if the president of the American federal reserve Jerome Powell is slow to reduce interest rates while Europe moves at a faster rate, this will clearly have implications for currencies.
One of my concerns for Europe is that if they reduce interest rates too quickly compared to the United States, this could have real impacts on their currency. This would affect imports but would help exports. If I were a European manager, I would be more in the eyes of the eagle than ever on the prospects of currency fluctuations.
Girlfriend: Looking at the different sectors of industry, are there sectors that deserve prices? Are there also sectors that should not see prices in these negotiations?
Ross: Well, I focused on those who might need it than those who couldn’t. However, pharmaceutical products are a major import for the United States, as the prices of American drugs are already higher than the others, I do not think that high prices on pharmaceutical products would be particularly well adjusted for our economy.
But they go to the very big article – the automobile. Automobile manufacturing has caused a good degree of factory expansion here and Mexico. In the automotive industry, you must watch the United States and Mexico combined due to the concept of original rules. In these areas, it is inevitable. So, I think you are right – it will vary somewhat depending on the industry. But for the most part, most manufacturing companies probably do not expect more pricing charges.
Girlfriend: Are the major American exporters, such as technology manufacturers, would they negatively affected by this?
Ross: Well, Europe does not have the technological content that we have so far. Giant companies in Europe are not comparable to what we call “the magnificent seven” here. Europe’s response seems to have been antitrust and tax complaints, trying to retain American companies rather than doing things that would effectively strengthen a European champion.
Girlfriend: What about these American industrial sectors intended more for exports? Are they at risk due to short-term pricing reciprocity?
Ross: Well, clothes are a significant import from Asian countries, and that would not surprise me if it should continue. Some of these brands, such as the European brand Zara, have become very, very powerful players in the United States. It is a Spanish company, but it mainly produces its equipment in Türkiye. Meanwhile, Vietnam and Mexico have become great competitors in what we called sneakers. Thus, some things will remain there that will not be affected by the prices.
But remember, the real tariff objective – and I hope will be achieved in the long term – is to let the rest of the world know exactly what they have to do to drop our prices, namely to drop their own prices. The unexpected result of the new American pricing policy could very well be lower long -term rates.
Take India, for example. India prices are extremely high on most products. Prime Minister Narendra Modi wants to industrialize India. It is a logical place to be competitive with China if they can meet their infrastructure needs, because Indians have very good quality manufacturing skills, technological skills and engineering skills. They have a large population, so there is no reason why they cannot compete. What holds them was the need for more roads and railways. You need things like that in terms of transport infrastructure to be much more developed for India to flourish. There is a good chance that PM Modifs it.
Vietnam has already greatly benefited from the pressures exerted on China, which will probably continue. However, Vietnam has a much lower economy and population, so it cannot replace China remotely.