14th November, 2016
It’s hard to know how the Trump presidency will affect New Zealand small to medium sized businesses at this stage, but we do have a few clues.
Ongoing uncertainty is the main thing that could really throw a spanner in the works, but now we have a definitive election result we can start to piece together what to be on the lookout for.
We’re not suggesting that this will play out exactly as described, but they are things to be on the lookout for.
During the campaign, President-elect Donald Trump was rather vocal on his plan to effectively ‘crack down’ on trade with China, calling the country a currency manipulator.
His plan would be to slap tariffs on Chinese imports in the US, and given China is a rather heavy exporter into the US market, it would likely spark a reaction.
On the other side of the Pacific, China holds approximately US$1.2 trillion worth of Treasury securities – making it the largest foreign owner. A trade/currency war would get ugly.
So how do all these faraway goings on impact a kiwi small business owner?
Well, it could play out in a couple of ways.
China has become a very lucrative market for New Zealand, particularly in the dairy segment.
If China’s economy slows because of a trade war with the US, then it will buy less from NZ.
If Trump puts up barriers to foreign goods across the board, that’ll harm local exporters.
That could mean less money in the New Zealand economy, meaning fewer jobs, less take-home salary, and less money to buy the goods and services provided by NZ SMEs…
One of the more interesting questions about the election of Trump is how it could affect the US dollar.
Last week into gold and gold stocks, which is generally read as investors piling out of the US dollar and into the so-called ‘safe haven’ commodity.
The stock market was initially down, and then back up – and the rollercoaster could continue for a while yet.
If last week wasn’t just a blip and the US dollar becomes less attractive for investors, then other currencies could appreciate in value against it.
New Zealand is generally seen as a pretty good economy to invest in. So, should investors decide the NZ dollar is a good proxy for that growth then the dollar will go up.
That’s great for anybody who buys goods and services from overseas.
That’s not so great for international tourism businesses or exporters.
If you’re an SME buying goods from overseas, then happy days.
If you’re looking to sell into overseas markets, your product may start to look pricey from an international viewpoint.
Trump has already signaled his intent to not honour the Trans Pacific Partnership.
It’s a huge regional free-trade deal involving 12 countries – including us.
The promise of the TPP was to lower the barriers between New Zealand goods and services and the economies of the 11 other participating countries.
Now that’s very much in doubt.
So if you’re an SME selling your goods or services into those counties, then the same old roadblocks will still be in place. Things like tariffs will be left in place in the absence of the TPP.
While we’re on the topic of trade, Trump has signaled an isolationist and protectionist set of policies, meaning the US will gradually try to lessen its reliance on overseas trade.
For example, it may put a tariff on exports from China. China would in-turn will put a tariff on US imports.
Both countries will essentially leave the responsibility of generating economic activity to their own citizens rather than other countries’ economies.
This could have a huge flow-on effect for other countries.
If you’re an SME looking to export your goods or services to other countries, that’s somewhat of a barrier – and it’s not great news for New Zealand SMEs.
One of the trends going on right now, particularly in the tech space is the desire to go global from day one.
New Zealand just doesn’t offer the scale to be able to grow a truly big business. SMEs or startups may start small, but a fair few have a burning desire to go global.
You can probably rule that out if the US moves to an isolationist footing.
“A man you can bait with a tweet is not a man you can trust with nuclear weapons” – Hillary Clinton.
It would be fair to say that Trump’s rhetoric on foreign policy during the election process was…prickly.
There’s a very good reason why most foreign relations are really boring – everybody is obsessed with keeping things as generally stable as they can be.
With Trump, not so much.
This could contribute to a general background of global uncertainty in the world. So, what does this mean for an SME?
It could mean that investment is harder to come buy as investors move into hardcore acorn-gathering mode.
It could also, oddly enough, mean people want to enjoy themselves more by buying goods and services which bring them short-term enjoyment.
Everybody wants to forget the troubles of the world every so often, and businesses that provide this service could find themselves in demand.
With all this, we should stress that we’re being highly speculative. It’s not even been a week since Trump was elected, and he doesn’t take office until January, so it’s definitely not panic stations.
No one knows how this will all play out (Trump could well govern as a traditional Republican) – so these are things to keep an eye on rather than things to panic about.
We’ll know more as it all starts to bear out over the coming years, but one thing is for certain
We live in interesting times.