As the inauguration of President-elect Donald Trump nears, retailers should be paying close attention to expected seismic changes in domestic trade policy that will have an important impact on the fashion industry.
Mr. Trump recently announced the nomination of Robert Lighthizer to serve as US trade representative, another indication that the new Administration intends to make good on campaign promises to curb imports that are seen as hurting US businesses. A longtime adviser to US steel industry companies, Mr. Lighthizer served from 1983 to 1985 as deputy US trade representative during the Ronald Reagan. Mr. Lighthizer is known as a master strategist for trade sensitive domestic manufacturers, and he joins Commerce Secretary-Designate Wilbur Ross, a longtime steel industry investor, and economist Peter Navarro, a leading China trade critic, to constitute a trade policy team decidedly skeptical of past free trade conventions.
For the fashion industry, the most important changes we anticipate include:
- The Trans Pacific Partnership will likely be cancelled shortly after Mr. Trump takes office. The repudiation of TPP, with its extensively negotiated rules of origin, is likely to have long-term consequences for the textile sector in Vietnam.
- NAFTA will likely be slated for renegotiation, though it is unclear what issues will be targeted. This was one of the most familiar campaign promises by then-candidate Trump and we can expect his new trade officials to seek to reopen elements of NAFTA via a formal request, pursuant to the agreement’s provisions. It is also significant that the current government in Mexico is unpopular and may be short on the political capital that is needed to sell major concessions. Developments in this negotiation are going to be closely watched and become a harbinger of new American negotiating priorities in future trade agreements.
- China will figure prominently in trade policy, with Mr. Trump having pledged to label the country as a currency manipulator shortly after taking office. In practical terms, this will start a process that will buy the Administration time to consider options. This may result in a trade confrontation that could put a shadow on many supply chains. China is likely to become the most contentious trade relationship for the new White House and lead to renewed interest in trade remedies largely unexplored by recent Administrations.
- Latin America should be watched closely. Peru is part of an existing bilateral free trade agreement and we do not expect this agreement to be disturbed by a change of administration. In addition, El Salvador is part of CAFTA. Because of the small reach of this agreement and its long roots in the Caribbean Basin Initiative, it is unlikely to be disrupted. We note that Ross himself has been supportive of CAFTA in the past, and a reopening of other regional trade pacts is unlikely.
The Administration’s new trade policy will be developed at the same time that the Republican Congressional majority and the Administration are developing a comprehensive tax reform proposal. The proposal might include a border adjusted cash flow business tax with territorial treatment that would change the calculus of competitive advantage for many domestic producers. Clearly, global trade and tax policy will be front and center.