What could a Trump presidency really mean?

What could a Trump presidency really mean?

Global markets have been thrown into disarray today (9 November) after Donald Trump was elected as the 45th president of the United States, in a shock result that confounded opinion polls pointing to a narrow win for Hillary Clinton.

The decision is the second major upset to the Western political establishment in five months, since the summer's Brexit referendum vote in the UK – and marks the end of a historic and hostile campaign tinged with protectionist rhetoric.

It also means the US will be governed from next year by a real-estate developer and reality-TV star who is also the first ever president never to have held public office or served in the military.

Trump's unpredictable stance throughout the campaign creates massive uncertainty for the textile and apparel sector, with his promises to tear up US trade agreements including NAFTA (the North American Free Trade Agreement with Canada and Mexico) and the Trans-Pacific Partnership (TPP), threats to impose tariffs on US imports from China, and plans to build a wall barricading the US border with Mexico.

And of course there is his 'Make America Great Again' slogan, with the campaign outlining a number of tax reforms, including a lower corporate tax rate and trade reforms to bring back manufacturing and create new US jobs.

What might this mean?

This is just a taste of his stance, but the key question today, though, is what could a Trump presidency really mean?

Writing on just-style's sister site just-auto, managing editor Dave Leggett makes the point that it's one thing to speak out in the heat of a political campaign, but actually being in office presents different challenges and constraints.

Some pundits are talking of the end of the Western world, the end of NATO and the end of the rules-based system for international trade, while others are expressing faith in the checks and balances of the US system of government to maintain stability in Washington.

A significant body of things said on the campaign trail won't make it into action or statute. And a feel for just how a Trump administration will work – in terms of approach – will emerge more clearly over the next weeks and months.

The global business community has reacted, initially at least, with negative sentiment. Stock markets are down. The dollar is taking a hit. A Clinton victory was widely perceived as one that would bring business-as-usual in terms of the outlook for the US economy and the global economy.

A Trump victory throws up a number of uncertainties – for both the short-term and long-term. Political commentators note that during the presidential campaign, the statements of Trump have been rather erratic or hazy.

He seemed generally against free trade and criticised companies for investing in manufacturing plants in low-cost Mexico. He seemed to say that NAFTA needs to be ripped up or renegotiated. Indeed, "NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country," Trump said in the final presidential debate.

Such words resonated with a section of the US electorate that feels bypassed by much of the economic growth of recent years. Trump's narrative was that unfair trade agreements have led to the hollowing out of the US manufacturing sector and that countries like China don't play fair.

Why voters don't want more global supply chains

Will a Trump administration revisit NAFTA? Such a prospect is a concerning one because NAFTA's free trade framework with Mexico has been at the heart of many sourcing strategies in North America.

The US exported $6.5bn of apparel and textiles to Mexico last year and, in turn, Mexico shipped $4.2bn to the US. Earlier this year executives told just-style that if Trump went ahead with threats to build a 3,200-kilometre fence on the Mexican-American border to stem immigration, it could cut $2.2bn or 20% of the $11bn in US-Mexican textiles and apparel trade in its first year.

Mexico textile sector worries over TPP and Trump wall

Trump also wants to declare China a currency manipulator because of its past efforts to push down the value of its currency – boosting its exports to the US. He has threatened to unilaterally apply new tariffs on Chinese and Mexican imports.

But how would a 45% tariff rate affect US imports of textiles and apparel from China? With surprisingly little impact, according to a just-style analysis in June. China's exports would survive, and Chinese investment in other countries would only grow, allowing companies to ship to the US via third countries.

Regardless, it is hard to see how such a duty would bring jobs back to the US. There are too many options for sourcing, too many competing nations in the market. After all, dozens of countries export textiles and apparel to the US.

Trump's China tariff makes for a self-serving sound-bite

Trump has also said he opposes the Trans-Pacific Partnership (TPP) free trade deal with 12 nations including Vietnam. And prospects for a free trade deal with the EU (the Transatlantic Trade and Investment Partnership or TTIP) have probably just taken a knock.

There are also question marks over what the tone will be in the Trump administration's trading relations with the global community. Will it be one that is pragmatic or one that risks trade wars that spiral out of control and slash global economic growth?

Speaking on a panel discussion earlier this month on 'Politics, Trade and the Economy – What's Next?', Bob Antoshak, managing director at Olah Inc, the New York-based marketer of denim fabrics, said he believed the degree to which US trade policy may be impacted "will depend on whether the election is narrowly won one way or the other, or whether there's a significant landslide in favour of one party or the other. And I think that will come back to manifest itself in things like TPP."

He added: "Yet there's also business realities of global supply chains that will not be easy to ignore; so what that turns into will be unplotted territory. I think we are in a precarious situation."

Politics, trade and the economy – what's next?

Economic hit?

Has the outlook for the US economy in the short-term taken a hit? The Brexit experience could be instructive here, Leggett writes.

Markets are reacting as expected to an event that is widely perceived as a net negative – as was the case in the UK this summer. But the initial reaction takes place against a background of uncertainty and limited information.

There followed a degree of stabilisation and a realisation that the worst scenarios have been avoided – for now at least.

A similar path may be in prospect for the US economy. If the Federal Reserve believes it needs to shore up confidence, as the Bank of England did in the summer, any tightening of monetary policy perhaps just got put back. The prospect of lower interest rates for longer may just give the US economy a lift.

Are big tax cuts coming (both to individuals and companies) and where could that leave the US economy? And what about the loud promises on new infrastructure investment? How will that be funded?

The Oval Office will be a busy place in 2017. Donald Trump's administration has a mandate to do things differently, that's for sure. Some things will be shaken up by what is clearly a vote against the political establishment and apparently against the forces of globalisation.

But the US is a major force in the world and is 'global' in terms of the orientation of its economy and the world class companies headquartered in the US that play on a world stage. Donald Trump will now have to listen to them.

The Flanarant: Why Trump will be true to his trade threats