There are trends in Trump’s trade policy. What investors can learn.
Source: Live Mint
President Donald Trump’s trade policies have been described as somewhere between dumb and chaotic.
Dismissing them out of hand, however, risks missing some big underlying trends that will create opportunities for investors.
Decades of economic orthodoxy that preached the benefits of free trade and low-cost manufacturing are giving way to 18th or 19th-century mercantilism built on protectionism and localized manufacturing.
It feels upside down. What is clear, however, is that key figures in Trump’s administration, including Vice President JD Vance, want to “make it here,” says BofA Securities analyst Andrew Obin, adding investors should brush up on Curtis Yarvin.
Yarvin, who has the ear of Vance and others, argues that democracy is weak and favors America having what he describes as a monarchy with a CEO-style leader instead. He also questions the wisdom of optimizing an economy for the cheapest flat-screen TVs at the cost of having no, or low-paying, jobs for the people who own those TVs.
There were about 17 million manufacturing workers in America in 2000, just before China joined the World Trade Organization. Now, there are less than 13 million.
When it joined the WTO, China accounted for roughly 10% of global manufacturing while the U.S. accounted for about 25%. Today, China is closer to 30%, while America’s share has fallen to 15%.
America has done just fine, of course. There are about 165 million total jobs in the U.S., according to the Bureau of Labor Statistics. There were closer to 135 million at the turn of the century.
Beyond job quality, an overreliance on China is one reason to rethink manufacturing.
“The whole globalization thing became overdone,” says Trump’s former Commerce Secretary Wilbur Ross, adding pragmatically that “CEOs of major companies tend to have a little bit of lemming-like behavior.”
For decades, CEOs chased lower labor costs around the globe. Now, they are looking to minimize supply chain vulnerability.
Even before Trump retook the White House in November, Covid-19 brought terms such as “nearshoring” and “dual sourced supply” into the manufacturing vernacular, explains Arjun Divecha, director and head of emerging-markets equity at the investment manager GMO.
Still, he is skeptical things will look more like 1999 any time soon. “Low-end manufacturing…forget about it. The stuff that’s going to come back is intellectual property, high capital spending.”
A move back toward localized, high-value production is positive for companies building plants, powering plants, and providing automation technologies to run the plants.
Higher tariffs might not be good for companies reliant on foreign labor. Through midday trading Friday, Nike stock was down 13% since the Nov. 5 election. The auto industry has been thrown into turmoil by the potential 25% tariffs on Canadian and Mexican imports.
Some industries being hurt probably won’t be enough for the Trump administration to pivot significantly. The deglobalization genie is out of the bottle.
Write to Al Root at allen.root@dowjones.com
