Strategy and Operations

Rough Trade

Remember Ronald Reagan’s farewell address from the Oval Office? His vision of that “shining city on the hill whose beacon light guides freedom-loving people everywhere … free ports that hum with commerce where walls have doors that are open to anyone with the will and heart to get here.”

That image seems a bit tarnished these days as the thick-as-pea-soup fog of political rhetoric we hoped would dissipate after the presidential election still clouds everyone’s vision.

Nativist cries of “Make America Great Again” and “Made in America” were highly effective catchphrases for candidate Trump and no doubt swayed an election in a way no one thought possible. But have these slogans, meant to promote nationalistic pride and secure our standing in world trade, turned into nothing more than jingoistic bile that threatens to do far more harm than good?

Global Daisy Chain

Let’s look at the issues. The marketer-in-chief and his family are inserting themselves to an unprecedented extent in the day-to-day workings of business. Talk of walls, tariffs and immigration bans are creating a daisy chain of global conflict that not only risks alienating customers but also trading partners around the world who might build their own wall around American goods and services.

I tend to steer clear of political commentary, firm in my belief that both sides of the Congressional aisle and whomever occupies 1600 Pennsylvania are more interested in keeping their jobs for the long haul than fulfilling the promise of democracy which, in truth, can be a pretty messy business. Furthermore, the Administration has already gained a reputation for walking back some of its more radical executive orders.

But this whole brouhaha isn’t about red or blue. It’s about green! As the song said: “Money makes the world go ‘round.”

On the surface, Made in America or America First themes could be a competitive advantage for smaller retailers and manufacturers in categories like food and agriculture, apparel, and even electronics. Keeping production here and growing U.S. jobs is a good thing. Right?

The Engine Sputters

According to the American Apparel and Footwear Association, the share of domestically produced clothing shrunk to 2.7 percent in 2015, down from 10.2 percent in 2005 and 46.2 percent a decade before that. So much for the glory days of the American manufacturing engine.

Everyone knows that the term “American-made” has become something of an oxymoron. During the election, Clinton campaign staffers, trying to embarrass the opposition, went to the Trump Tower gift shop and bought ties made in China and shirts made in Peru and Africa. Is this really a surprise?

For years, Walmart was under fire for having foreign-made goods under Made in America signage. Let’s give the Bentonville Behemoth the benefit of the doubt and say, “mistakes happen.” To their credit, they refuse to give up the ghost and last year announced a plan to add $250 billion worth of American-made products to its stores by 2023, a plan executives said would create one million new manufacturing and support jobs. Good luck with that! No one asks how many manufacturing jobs were lost by Walmart buying Chinese-made goods all these years.

But more important is whether “Buy American” and “Hire American” will be a liability. To a degree this is already happening thanks to questionable outrage on social media.

Around the time of the election, sneaker maker New Balance got into a bit of hot water with many customers when the Wall Street Journal quoted an executive saying that the Obama Administration “turned a deaf ear” to U.S. manufacturers and under the Trump Administration “things are moving in the right direction.” It didn’t help when a white supremacist group claimed New Balance as the preferred brand for white people.

According to a published report, the iconic L.L. Bean brand found itself in danger of a boycott after President Trump tweeted support for the brand.

Trump decreed on the POTUS Twitter account that First Daughter Ivanka was treated unfairly when Nordstrom and Neiman Marcus cut her merchandise lines, citing sluggish sales. And we all remember what happened with Nordstrom and the fallout from Kellyanne Conway’s on-air promotion for the Ivanka line. In the wake of this tempest in a teapot, Charlotte-based Belk stores decided to keep the brand in stores.

Meanwhile, an activist campaign called #GrabYourWallet has put pressure on chains like Macy’s, Bloomingdale’s and Dillard’s to boycott products and companies associated with Trump.

Fashion vs. Politics

This damned-if-you-do, damned-if-you-don’t situation was brought up in an interview with Jonathan Wilde, editor of GQ.com, who noted that a favorable view of domestic manufacturing could be a big boost for apparel makers. But it could also lose them a valuable younger demographic if “Made in America” turns into a political slogan.

Another problem is that a product can be American-made, but that the bulk of source material used to manufacture it still comes from overseas. The only way to change this situation is to renegotiate trade deals and initiate import tariffs. But this could conceivably trigger a backlash against American imports in overseas markets. So who wins?

On the tech front, Apple and Microsoft are vocal opponents of the Administration’s proposed immigration ban and its plan to overhaul the H1-B visa. You can call them defenders of the Constitution and all the huddled masses yearning to breathe free. But these people are also pragmatists. Silicon Valley depends on foreign workers and a travel ban or more extreme vetting could damage their ability to hire and keep creative, highly skilled people and maintain a competitive edge.

Besides, it’s highly unlikely any of this will keep jobs in the U.S. More likely it will create jobs in places like India and build up the available talent pool for U.S. companies with international operations.

Additionally, what happens to the price of Apple products or others in the U.S. if a 20 percent tariff is slapped on raw materials and finished products from China, Malaysia, Japan, the Philippines and its symbiotic relationship with most Pacific Rim countries? If you listen closely you can hear Wall Street’s sphincter tightening.

And by the way, any travel ban could also have a devastating effect on U.S. tourism and an ancillary impact on retailers who don’t relish the prospect of losing all those foreign dollars.

Trickle Down?

The Administration’s plan to slash the corporate tax rate from 35 percent to 15 percent and eliminate federal regulations may be attractive for industries like big pharma, defense contractors and banks but the trickle down to Americans is questionable if the Administration makes good on its promise to tear up NAFTA. This will pave the way for higher and less competitive prices on everything from apparel and automobiles to washing machines.

The same thing could happen if they fail to cobble together a replacement for the ill-fated Trans Pacific Partnership, which the retail industry and its global supply chain supported. Killing the TPP has enabled China to take the lead in the region, a position they could exploit in any future trade pact and raise prices with impunity.

Consider a recent NPD Group study which found that nearly 80 percent of consumers say buying products made in America is important to them, but less than 25 percent are willing to spend extra money for this pedigree.

When Doors Close

Perhaps one of the most cogent comments I’ve read lately came from a Muslim entrepreneur in New Jersey who stated, “As this president is closing the door on the world, the world is going to start closing the door on us.” This could be a disaster of epic proportions if prohibitively high tariffs prompt retaliation by other countries. Some economists liken the current situation to the Smoot-Hawley Tariff Act of 1930 that many feel led to the Great Depression.

Finally, what makes America exceptional is not the Pledge of Allegiance to any party and its policies, but allegiance to ideas, one of which is the free and fair movement of goods and services globally. In the end, I believe, or at least hope, this will prevail.

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