While the mantra of the high-tech industry is constant change, the types of changes our industry has been facing just this month are far outside the norm. The burning business and industry questions are not about volatile market cycles but what happens when ideology meets manufacturing reality along the global supply chain. There are, to be sure, many social, economic, and political issues that go hand-in-hand with business, but they will remain outside this supply chain analysis.
In the U.S., President Donald Trump has, in less than a week, signed and signaled a plethora of changes impacting effecting global trade, manufacturing, sourcing, and growth. Over the next couple of weeks, EPSNews will dive into the issues and explore the data from a wide set of sources and provide analyses of the coming year and beyond for the high-tech supply chain and global business.
There are real impacts of even the few days Trump has been in office, not the least of which are the stock market vacillations; the concern regarding H-1B visas; immigration issues for academics and high-tech engineers and the potential for significant import tariffs and trade wars. However, the threads of the macro- and micro-business challenges are rooted in longer standing events. The pullback of the U.S. from the Trans Pacific Partnership (TPP) is, in and of itself, not a truly significant act for the high-tech industry. However, the impact of who will fill the U.S.’s void and what the new tariff and trade regulations will mean are very significant.
The U.S. stock market is mostly bullish, although recent immigration issues are causing retreats particularly on NASDAQ and tech's sensitivity to H-1B issues. What does the market shift actually mean for consumer confidence, spending, and outlooks as well as the forecasts regarding inflation in the U.S. as well as the strength of the dollar going forward? Among concerns at the multinational corporation level include the pressure Trump has been placing on companies such as Ford Motor Co. and Apple, to reduce offshoring. Ford has capitulated somewhat, but analysts worry that this trend poses real threats to profitability for large multinationals. As The Economist noted: "If American multinationals shifted a quarter of their foreign jobs home, at American wage rates, and paid the same tax rate abroad as they did at home, their profits would fall by another 12%. This excludes the cost of building the new plants in America."
In a similarly discouraging analysis, The Wall Street Journal reviewed the trends behind the stock market bull run last week and the deeper fundamentals that point to more serious problems come 2018: "Eight years of ultra-easy monetary policy have left a worrisome legacy of inflated asset prices and financial engineering. Gail Fosler, a New York-based economic consultant, says corporate profit growth has slowed, companies’ cash flow barely covers capital investment and dividends, and the bond market is signaling that the Fed has to raise interest rates more quickly. Ms. Fosler says these are the ingredients of a financial squeeze that will trigger a recession in 2018."
Clearly, Trump and his daily mandates are impacting the high-tech industry as well as the international business scene. Among the questions pertaining to the high-tech supply chain that we’ll be tackling over the next few weeks include: How will the “America First” mandate impact the U.S.’s trade imbalances with China (and Mexico)? Will the current U.S. economic situation move toward inflation and then recession by 2018 given spending and taxation implications that are being ordered from the executive office? Will, as China signaled at Davos last week, the U.S. retrenchment to protectionism propel China into the global leadership it has worked toward? How does America First parallel and contrast with China and India’s plans for strengthening domestic high-tech manufacturing and service industries? And, importantly, in the multinational sourcing and production world for high-tech products, how does a retreat from globalization impact our industry?
Next week, EPSNews will take a deep dive into the current macro-economic environment for the high-tech industry and the impact of a retrenchment of globalization by the U.S. As market forces and economic conditions continue to be reshaped, EPSNews is here to help you stay abreast of the impact of U.S. shifts, global trends, and the actual global supply chain data and synthesize the many data points affecting the direction of our industry.