How To Cope With An International Trade War; The Small Business Strategist’s Guide

How To Cope With An International Trade War; The Small Business Strategist’s Guide

Now that Donald Trump has got his feet well and truly under the table at The White House, it is not surprising that there are trade wars been wagered all over the world. Trump seems to thrive on controversy, and he has certainly created plenty of it on the global stage, but perhaps more so than ever when it comes to trade.

In the past few months, he has threatened tariffs against Chinese, European, Canadian, and Mexican goods imported into the US, with China targeted the most. If he gets his way, assorted Chinese goods will be subject to some $250 billion worth of tariffs. The POTUS recently used Twitter, seemingly his preferred method of communication, to declare that:

“Tariffs are working big time. Every country on earth wants to take wealth out of the U.S., always to our detriment. I say, as they come, tax them. If they don’t want to be taxed, let them make or build the product in the U.S. In either event, it means jobs and great wealth.”

Is Trump right, and how does this affect the global trade prospects of the average small-to-medium sized business that wants to do trade with business partners overseas? Are there lessons to be learned, or is a policy of damage limitation a better strategy in these turbulent times?

Read our 3 point guide below and let us know your thoughts.

 

1/ Is Trump right or wrong about tariffs? Is his strategy worth trying?

One thing to bear in mind about the POTUS is that he is a businessman who plans ahead and often says things to cause a stir and create panic in the short term. Then, when he later softens his stance and makes a deal instead, he hopes to be acclaimed for being statesman-like and saving the world from another global crisis – but don’t forget, he created that crisis in the first place!

The situation with America and its global trading partners is complex, and it’s possible that Trump has a point when he claims that the US has made some bad trade deals in the past and needs to be more protectionist in its outlook. On the other hand, no other President has adopted this attitude and he risks a great deal each time he declares trade war on another country. Is it worth it?

As a strategy, it appears to be high risk and one that only works if you are supremely confident in your own abilities, and wield a great deal of power within your organisation. Most business leaders and entrepreneurs prefer to keep relations with their trade partners on a more even keel, and respect the rules and regulations more.

If you are planning to “go full POTUS” remember that you are placing not just your own, but your colleagues welfare in danger. Brexit is the kind of avoidable crisis that seems to have been pulled right out of the Trump playbook – if it ends in disaster, its perpetrators will have only themselves to blame. In short, if you conduct business like Trump, you may not win any popularity contests. You may win big, or you may end up with egg on your face.

 

2/ Do Trump’s Protectionist Policies affect global trade winds for SMEs and entrepreneurs

It seems unlikely. Most business leaders are beholden to their shareholders, business partners and colleagues, so proceed cautiously. Admittedly, the time to indulge in a “free-hit”, or emboldened trade strategy, is immediately after receiving a vote of confidence – in Trump’s case, being elected – when you are at your most powerful, and have the most amount of time to repair things if they go wrong.

But very few business leaders can affect global trade patterns on their own, and more often than not, trade policies will be chiefly decided by two things. The macro level considerations, and the micro level ones.

For example, your trade policies at the micro level will be dictated by circumstances such as whether you have a surplus of a particular product, the state of your current relationships with particular trade partners, your budget, and your long term business plan.

At the macro level, occasionally an opportunity might arise that results in a business going against its instincts for a short term gain. A good example would be the plunge in value in the pound after the Brexit referendum. Whilst most of us panicked, smart business leaders may have sensed an opportunity to make more sales, offload slow selling products, or look to import goods from the UK at a higher volume than usual, taking advantage of the weak pound.

To summarise, the global trade war is of course of crucial importance to the future of global trade, but it should not cause anybody to abandon their trading principles, unless an unusual and advantageous opportunity rears its head, that outweighs everyday micro-level trade concerns, Even then, it will have to be a carefully considered judgement call.

 

3/ What does the response from Trump’s targets teach us about trade policy?

It would be foolish to only consider what Trump is doing – what about the targets of his aggressive policies? Of course, China, Europe, Mexico and Canada have their own agendas to pursue, and these too will sometimes clash with global trade policies.

But Canada, Mexico, China and Europe have all found ways to reach a general consensus about acceptable business practices, and have shown a willingness to play by the rules. Whilst Trump is trying to pull the US out of trade deals, other countries seem content with the deals they have in place.

SME owners and entrepreneurs ought to note that, as the old saying goes, it is better to be “inside the tent p*ssing out”, than “outside the tent p*ssing in.” Consistently maintaining good relations with your trade partners, through regular, non-confrontational negotiations, is surely preferable to the energy-sapping and dramatic conflicts that Trump stages seemingly randomly.

Trump’s is a high-octane strategy that is extremely demanding. A shock-and-awe approach that most people find unsavoury, not to mention unnecessary. The only justification for such a policy, in fact, is if it gets results. A marginal gain is surely not worth the trouble, but if it is a complete reversal of fortune you are seeking within your organisation, if your very existence is under threat, if there is not other option but to “go full POTUS”, then at least you won’t die wondering.

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