By Chris Kuehl, managing director, Armada Corporate Intelligence
First, the good news – it now is safe to watch TV again (except for all the ads from lawyers). The campaigns are over, and choices have been made with some happy and some not-so-happy. What happens next is transitioning from promises and electioneering to policy decisions and actual governing. What is expected, and what should these political leaders be focusing on?
Three Major Policy Shifts
Three things stand out as far as projected policy. President Trump and the GOP are committed to what has been described as nationalist populism. This approach means the US will become more isolationist when it comes to world affairs and more protectionist when it comes to the economy. This is the intent, in any case, but making it a reality will be challenging.
Trade and Tariffs
The first major shift will involve trade, where President Trump asserted that he would impose a 20% tariff on anything that was exported into the US and a 60% tariff on goods from China. That is easier said than done. In his first term, he tried to impose significant tariffs on imported steel and aluminum, but by the time the plan was implemented, there were exemptions for Canada, Mexico, Europe, South Korea, Australia, Brazil, Argentina and Japan. China dodged the tariffs by transshipping. Countries hit by tariffs retaliated with tariffs and restrictions of their own. Remember when Japan struck back with a major tariff on imported bourbon to get the attention of Mitch McConnell? It also is very possible that President Trump has proposed these tariffs as a negotiating technique.
Several of his allies suggest these tariffs will be reduced or eliminated if the target nation provides something in return. This could be better access for US-made goods or promises to shift production to the US. There is evidence that Taiwan Semiconductor decided to build its newest plant outside Phoenix for that very reason. Some of this exchange already has been seen as Colombia backed off its refusal to accept migrants back into the country, and Europe has been shifting away from Russian oil and gas toward US output. In President Trump’s first term, hundreds of exemptions were given to tariffs if the nations targeted agreed to US demands.
Global Affairs
The second major policy shift involves US engagement in global affairs. It likely is that the US will restrict support for Ukraine and may back away from commitments in the Middle East. There is talk about withdrawing from NATO, and the US will not engage in most of the international meetings. This strategy may erode, as well, because it means the US will not have a seat at the table when decisions are being made.
The most pressing issue will be Taiwan and whether the US will back that nation if China attacks. North Korea is a potential crisis point, as well. Given how integrated Taiwan, South Korea and Japan are in the US economy, this will be an important set of decisions. This also could be a negotiating tactic. The US has been demanding that Europe play a bigger financial role in NATO, and Ukraine and Japan have been pressured to play a bigger role in opposing China.
It is abundantly clear that the US needs imports, as it does not produce everything required, but it is equally clear these nations need the US consumer – a wide-open opportunity to indulge in negotiations. It is evident that the US will become more isolated from global issues as it focuses on domestic concerns.
Immigration
The third policy shift is immigration. There is a universal agreement that something must be done to control illegal immigration. This also is an issue in Europe and Asia. The challenge is that the patterns have changed. The migrants today are better classified as refugees, as they are fleeing tyrannical regimes, drug wars and the like. They are not interested in assimilation or even working in the US – ultimately, they want to go home. This creates a major drain on US resources. The border will be tightened, and it will be expensive.
At the same time, the US faces an acute labor shortage and needs migrants with the right skills and willingness to adapt to living in the US. How does the US attract the people it needs, while keeping others out – especially given that every nation is seeking people with those same skills and education?
Emerging Issues and Economic Challenges
What should be demanded from those who were just elected? From the business perspective, three issues emerge at the top of nearly every list.
Labor
It starts with labor, as economists and analysts have been sounding the demographic alarm for years. By 2030, the entire Boomer generation (76 million) will have reached retirement age. There has to be a focused effort to train and educate people for the jobs of today.
Regulations
The second major issue is regulation – thousands of regulations are promulgated every year and they have become a major burden. Many of the regulations have nothing to do with the core business and are directed at social issues. Many regulations are contradictory and overall expensive. The average cost of regulatory compliance for a company now is $315,000 annually (19% of payroll costs). A small company with 20 employees is paying $1 million in compliance costs per year. Manufacturers pay $350 million in compliance costs annually, and that is 12% of the sector’s value to GDP.
Infrastructure
The third issue is infrastructure support. The US transportation system has been graded D-negative by civil engineering associations. The power grid is woefully inadequate. The data center expansion alone will require 45 terawatts of energy, which means radical expansion of power plants fueled by everything available (e.g., oil, gas, coal, nuclear, wind, solar). The ports are inefficient as unions block the use of technology, and water availability has become a major issue as well. The US is welcoming reshoring, but companies can’t move to the US if there are no workers, no power, no water, bad roads and regulations that cost millions. And then, there is the issue of taxes – often distorting and too high for many businesses to handle.
In the midst of these major economic challenges, there is one that hits people directly. Housing continues to be the chief concern as the US still is 4.5 million homes short, which is up from the prior year. The majority of this shortage is in the lower-cost sector, but many of the fast-growing cities are facing a deficit at every level. This has contributed to the rise in a average housing price to between $420,000 and $440,000. Obviously, there are radical differences in price depending on the region. In California, the price is between $780,000 and $900,000, while in North Dakota it is between $260,000 and $280,000. The most recent significant shift in demand has seen Baby Boomers choosing to live in multi-family units (some version of senior living) and millennials, finally, starting to favor single-family homes as they begin to focus on raising children.
The plastics industry is woven through every aspect of the economy. The situation in oil production affects raw materials, of course, but plastics truly are ubiquitous and engage every sector. Advances in technology propel its use in everything from construction and medicine to any sector – name it.
Chris Kuehl is managing director of Armada Corporate Intelligence. Armada executives function as trusted strategic advisers to business executives, merging fundamental roots in corporate intelligence gathering, economic forecasting and strategy development. Armada focuses on the market forces bearing down on organizations.
More information: www.armada-intel.com
