The U.S. election and international business

"Protection against imports is more likely to be supported by Democrats. Past actions provided large benefits to few firms, and the cost were borne by many. Now there will be smaller benefits to many by taking aggressively from a few."

by Michael Czinkota

(October 29, London, Sri Lanka Guardian) Next week’s U.S. election will determine the political landscape for the next two years. But though we know that all politics are local, globalization provides all these local politics with major influence on the international marketplace. Though there is no strict cohesion within Democrats, the Republicans, and the Tea Party, an examination of their typical perspectives on international business issues may be helpful.

Support payments for the agricultural sector, infant industries, and worker adjustment assistance will be favored by Democrats, opposed by Republicans, and viewed with dismay by Tea Party players.

Tax abatements to encourage domestic investment, tax deferrals for foreign profits, and reduced taxation of income earned abroad will be opposed by Democrats, thus raising taxes on foreign activities. Republicans favor increased deferrals. Tea Party members are opposed to more government involvement in general, but might find good reason to support locals.

Protection against imports is more likely to be supported by Democrats. Past actions provided large benefits to few firms, and the cost were borne by many. Now there will be smaller benefits to many by taking aggressively from a few.

Exchange rate regimes are crucial. Trade used to drive currency values, but now exchange rates dominate trade. All three groups see exchange rate issues as important. For Democrats they are one more tool for international negotiations. Republicans tend to rely more on market forces – but have demonstrated their willingness to help these forces along. Tea Party players are most likely to stay away from interference in floating exchange rates.

For international institutions, such as the World Bank, the IMF and the World Trade Organization, Democrats tend to demand a broadening of activities, with no new funds. Republicans will invest in rear guard actions to preserve U.S. preeminence and may even provide some creative funding in support of such a goal.

In foreign policy, Democrats are more likely to seek negotiated political solutions. In contrast, Republicans and Tea Party players recognize opportunities for a nexus between trade policy and foreign policy to bridge relational gaps.

There is also a growing indifference, if not disdain of international business concerns by voters. The Wall Street Journal reports that the American public is increasingly hostile to free trade. 84% of Democrats and 90% of Republicans are fearful of outsourcing . Congress will find it quite difficult to exercise leadership if there are no followers.

Non-voters not interested or disenchanted require major new reason to get involved and may become motivated by charisma or focused bitterness. Already chomping at the bit are the teenagers who are old enough to understand how their future is being mortgaged but too young to vote. They sense frustration, disappointment and anger. There will be a payback for the ‘domestics’ who screwed it all up, says my daughter Margaret !

So what needs to be done? An unskilled and unmotivated worker in the U.S. cannot compete with a similar Chinese or Indian laborer. Education and interest will be for many the determining lifestyle factor. At the same time, not everybody needs to go to college. Plumbing or landscaping are activities of dignity, necessity, and virtue, and deserve to be skillfully taught and learned, rather than looked down upon.

In an age of participation, people no longer just trade their work for money. Firms need to provide context for activities and their repercussions. Everyone in the U.S. knows about the trauma of international competition, but few are aware of its prosperity. Job reductions are familiar, while new jobs are obscure. Firms must let the world know about growth and profits. Instead of TV shows on how to get rich by picking random brief cases, it is high time to launch a show on New York exporters or to launch a national competition on how to resolve international business obstacles.

After the election, we can expect overall more introspection on part of the United States. Export issues will gain support, with much less enthusiasm about imports. There will be limited encouragement of inward investments. Trade treaties, once modified for U.S. benefit are likely to be ratified. Ongoing difficulties precipitated by large budget deficits, will encourage the finding of foreign scapegoats. President Obama, in keeping with established tradition, will increase his international travel and exposure, which will translate into very limited financial support by Congress.

Overall, in terms of public enthusiasm, international trade and investment issues are likely to go back to the conditions of the early 1980’s. Relevant for specialists, but held at bay by a key focus on domestic concerns.

Michael Czinkota teaches International Business at Georgetown University and the University of Birmingham in the UK. He can be reached at czinkotm@georgetown.edu