Monthly Archives: January 2017

Fortune: Trump’s ‘America First’ Policy Will Give China a Big Edge Over America

The world turned upside-down last week when, within just seven days, the United States and China each reversed a posture they held for the past 70 years. In his inaugural address, U.S. President Donald Trump announced his newest slogan, “America First,” which effectively withdraws the nation from its global leadership role. Meanwhile, China is stepping up as the new leader of world economic order as President Xi Jinping accelerates China’s efforts to do business with the world, albeit one where it writes the rules to its own benefit. The consequences of these sudden changes will be profound and far-reaching with uncertain outcomes.

Xi Jinping, the first Chinese president ever to attend the World Economic Forum at Davos, opened the annual gathering last week with a full-throated endorsement of globalization, free trade, and cooperation between nations. “It is true that economic globalization has created new problems,” he said, “but this is no justification to write economic globalization off completely. Rather, we should adapt to and guide economic globalization, cushion its negative impact, and deliver its benefits to all countries and all nations.”

Xi warned that populist approaches can lead to war and poverty. “Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air,” he said. “No one will emerge as a winner in a trade war.”

Meanwhile, Trump took precisely the opposite tack in his inaugural address. “From this day forward, it’s going to be only America first, America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families,” he announced. “We will follow two simple rules: Buy American and hire American.”

While other nations have long looked to America for global leadership, the new president has made clear he will pursue a level of isolationism not seen since Col. Charles Lindbergh and the America First Committee of 1940-1941. Demonstrating that he plans to follow through on his campaign promises, President Trump formally withdrew from the Trans-Pacific Partnership on Monday, which in turn, will force reluctant Asian nations to negotiate their own bilateral agreements with China.

During the World Economic Forum last week, I had the opportunity to speak privately with several dozen corporate CEOs from America, Europe, and Asia, all of whom are scrambling to adapt to these sudden changes in the global order. Many of them have invested billions in building up their businesses in China. Now, they fear their plans are in jeopardy. Major global manufacturers from the automotive, pharmaceutical, chemical, medical technology, and consumer products worry that Trump’s new policies could disrupt their global manufacturing plans, which have been carefully constructed to optimize the efficiency of their supply chains based on free trade policies.

Retailers like Walmart (WMT, -0.64%)Target (TGT, -0.69%), and Best Buy (BBY, -1.90%)—which import most of their clothing and electronic products from China, Korea, and other Asian countries—worry that Trump’s threats of tariffs on imported goods or House Speaker Paul Ryan’s proposal for a 20% border tax would force them to raise prices by that amount, thereby curbing consumer spending. Their greater fear is that Trump’s policies could set off a global trade war in which countries retaliate with restrictive tariffs of their own.

For all the sturm und drang over job losses caused by imports, the reality is that 85% of lost jobs from 2000 to 2010 were actually “outsourced” to technology, a point cited by Secretary of State John Kerry at Davos. Under an “America First” scenario, these losses will likely accelerate as more companies automate their manufacturing plants and also service operations.

The greater concern—if there are indeed trade wars—is the loss of international revenues and the jobs they have created. The Commerce Department reports that in 2014, U.S. trade with the countries in the now-cancelled Trans-Pacific Partnership created 15.6 million American jobs, and an additional 6.9 million with the European Union. Exports to Mexico and Canada in 2015 accounted for 2.2 million jobs—a number that has grown during the last five years. Collectively, the number of jobs created by exports exceeds the 7.5 million Americans who are unemployed.

American farmers are especially concerned. In 2015, they exported $133 billion in farm products, which accounts for more than one-third of their total production, much of it to Mexico and Canada. Also overlooked in the debate over globalization is the fact that 98% of the 300,000 U.S. exporters are small and medium-sized businesses, not just large, global companies.

There is no doubt that President Trump is getting his message across, as he meets directly with CEOs of major global companies and sends out tweets threatening those that move jobs offshore. His approach offers the carrot-and-stick: He promises incentives like reductions in corporate taxes and regulations, while asserting he will punish those that go offshore. CEOs—including Ford’s (F, +0.81%) Mark Fields and Amazon’s (AMZN, -0.90%) Jeff Bezos—have found it enticing to join hands with the new president. The leaders of foreign companies like Fiat Chrysler (FCAU, +0.90%), Alibaba (BABA, -1.33%), and SoftBank have also tried to appease Trump with promises of U.S. investment and job creation. Such moves may work in the near-term to ease the political pressure, but are unlikely to bridge the widening gulf between Trump’s policies and the rest of the world’s opportunities.

Automobile makers are in a particularly difficult spot. In recent years, they have optimized their global manufacturing footprint and supply chains to produce large, profitable vehicles in the U.S., while shifting small vehicles, where margins are paper thin, to the lower-cost markets of China and Mexico. With the U.S. auto market at its peak, they are unable to expand U.S. production, especially when the greater opportunities for General Motors (GM, -0.32%) and Ford are in China with its large and fast-growing market.

While Trump is gaining short-term reinforcement for his “America First” policies, in the longer term, basic economics will dominate the thinking of U.S.-based global companies. These companies can ill afford to pursue uneconomic decisions without loss of their international business, which in turn will create increased pressure from shareholders demanding improved earnings.

The larger concern is the U.S. retreat from its 70-year role as the leader in global trade. This leadership has largely enabled us to set the rules governing trading transactions. If the U.S. steps aside, it will enable China to aggressively fill this vacuum, setting its own rules. If this occurs, America’s global companies and their employees will be the biggest losers, ceding leadership of their industries to emerging Asian and European companies.

The Trump administration is still making its opening moves. Nobody can predict how these early efforts ultimately play out. However, if the Trump administration focuses entirely on U.S. domestic manufacturing under its new “America First” moniker, the U.S. will hand China the leadership reins in a new era for the global economy.

Bill George is senior fellow at Harvard Business School, former chair and CEO of Medtronic, and author of Discover Your True North.

This content was originally posted on on 1/27/17.

Fortune: Here’s What Trump Doesn’t Get About American Manufacturing

If the Roman emperors ruled by edict, President-elect Donald Trump appears poised to rule by tweet. Even before taking office, Trump has discovered he can move the world’s largest global corporations with simple, 140-character tweets. And though his aggressive approach is winning politically, good politics doesn’t necessarily mean good economics.

Voters see Trump fulfilling his campaign promises to close America’s borders and bring jobs back home. He is using the bully pulpit to stand up for workers by taking on the most powerful American companies, including Ford (F, -0.24%)General Motors (GM, -0.88%), Toyota (TM, -0.03%)Boeing (BA, +0.20%)Lockheed Martin (LMT, +0.89%), and United Technologies (UTX, -0.61%)/Carrier.

Thus far, no CEOs have had the courage to stand up to Trump. General Motors CEO Mary Barra has said the company’s small-car production will remain in Mexico, but it could only be a matter of time before she’s forced to change course. Trump’s sudden tweets likely worry many CEOs who fear they may be his next target. Right now, most have just tried to stay out of his way. Some, like SoftBank’s Masayoshi Son and Fiat’s Sergio Marchionne, have put forth peace offerings to invest more in the U.S.

Most striking was Ford’s recent decision to reverse plans to build a $1.6 billion plant in Mexico to produce small cars. Then Trump rattled Japan’s leading automobile producer, Toyota, and its CEO, Akio Toyoda, by threatening to slap a “big border tax”—which he has referred to as 35%—on any automobiles the company assembled in Mexico and imported into the U.S.

Shortly thereafter, Marchionne committed to invest $1 billion in two existing U.S. plants and create 2,000 new jobs—investments that were already part of Chrysler’s plans. He said it is “quite possible” his company will abandon Mexican production altogether if Trump’s tariffs are too high.

Trump didn’t stop with the automakers. He jawboned Carrier into keeping jobs in the United States, threatened Boeing for the cost of Air Force One and Lockheed on its F-35 aircraft, and pharmaceutical companies on their high drug prices.

There is no doubt that Trump is winning the political game and shaking up America’s largest companies. But there is real danger that his pressure may corrode the competitiveness of U.S.-based global companies and cause retaliation by foreign governments.

One of America’s greatest strengths is having global companies that dominate their markets around the world through innovation, quality, and marketing. That’s why American companies lead a wide range of industries, from information technology, e-commerce, and social media to finance, pharmaceuticals, medical technology, consumer products, automobiles, farm equipment, and aircraft. They do so profitably with global supply chains that enable them to design and produce products to achieve optimal costs and deliver the greatest value to their customers around the globe. In many countries, they are required to produce a portion of their products locally.

The global strategies of our corporations have enabled them to compete effectively with Chinese, Japanese, German, and Korean manufacturers—all vigorous competitors striving to win share in global markets. At the same time, they have been profitable enough to reinvest substantial portions of their profits in research, innovation, and product development. When they do so, they stay ahead of their global competitors and increase their market shares. This positive cycle allows them to justify large capital investments in their facilities and provide substantial returns for their shareholders, as share prices for these global companies are at all-time highs.

Trump has learned how to reach the American people directly through his tweets, thus bypassing mainstream media. With his threats of large tariffs on imported goods, he has succeeded in forcing these giants to make uneconomic decisions—such as Carrier paying $25 per hour to its workers in Indiana to do work that can be done by Mexican employees for $2.50 per hour. However, in the long run, this will be a losing strategy for American workers if it forces Carrier to sell its air conditioners on the world market at non-competitive prices, or replace its production workers with robots, as Tesla (TSLA, +2.72%) has done in producing its electric cars. In either case, Carrier will be forced to reduce its Indiana workforce, with its workers ultimately becoming the losers.

The same logic applies to Ford, General Motors, Chrysler, and Toyota. Toyota has created 136,000 American jobs through direct employment, and has invested $21 billion in the U.S. What appear now to be significant “wins” for Trump may turn into pyrrhic victories, as America loses its competitive edge and hiring declines instead of increasing.

Trump has also repeatedly threatened to levy large tariffs on imports from Mexico and China. If he is serious about doing so, he will quickly learn that other countries can also play this game, and are quite willing to do so. This could trigger a trade war that will disadvantage American companies and their employees. Decades of progress in opening up foreign markets to American-made goods could quickly vanish.

Behind all of the threats and CEO responses lies a much deeper issue: the vital need for America to upgrade its workforce so that American employees can compete for jobs of the future. While there are 7.5 million unemployed Americans as of December 31, 2016, the irony is that there are 5.5 million jobs unfilled, many due to a lack of skilled workers. This situation will get worse in the years ahead as jobs become more complex and require more education and training. Filling these jobs with qualified Americans is essential for the competitiveness of U.S. companies.

Rather than jawboning companies to make uneconomic decisions, Trump and Congress should instead work with major employers to train and educate workers. Americans might even find a real strategy that emphasizes preparing for the jobs of the future vs. trying to save the jobs of the past.

If Trump’s tweets turn into an industrial policy, this may signal that the U.S. is headed into an era of “crony capitalism,” similar to the systems of France and Russia. In contrast, American business has been built on free market principles of market-based competition, free trade, meritocracy, and diversity. For five decades, the U.S. government has worked to ensure U.S. companies are free to sell their goods around the world on a level playing field with local competitors.

Now it appears the focus may shift to negotiation with the U.S. government over jobs, factory sites, and a host of other issues. If this becomes the prevailing norm, global companies will be reluctant to create new jobs and invest in new factories for fear of being locked into unprofitable decisions. This is a primary reason why France’s current unemployment rate of 9.5% is more than double the U.S.’s relatively modest 4.7% rate.

Let’s hope the bark of Trump’s Twitter (TWTR, -0.20%) account is worse than its bite. If Trump and his new team are wise, they will use his rising popularity to create transformative policy that fosters real growth for the next generation by making America truly competitive in world markets.

Bill George is senior fellow at Harvard Business School, former chair and CEO of Medtronic, and author of Discover Your True North.


This article was originally published on 1/14/2017 on