IBM511 UBT International Business in 2019 Political Trends Case Study
Political Trends Affecting International Business in 2019
China and international trade
As of this writing, U.S.-China relations have soured further after the arrest of Huawei’s Meng Wanzhou in Canada. This appears to represent a warning shot and marks the Trump administration’s resolve to mitigate the trade imbalance, alleged currency manipulation, cyber threats and loss of American intellectual property.
Yet, strained U.S.-China relations seem to cut deeper as the two superpowers are embroiled in an arms race from space to 5G and chip production. The world is watching to see if tariffs represent the long-term trade policy of the United States.
U.S. companies are actively working to restructure their global supply chains, including evaluating options in Mexico, Singapore, Malaysia, Vietnam and Thailand. [i] Major retailers, such as Walmart and Best Buy, have indicated to their suppliers that they expect them to mitigate supply risk and are willing to pay more to do so.
Ironically, China is forging a relationship with Russia in opposition to the U.S. When the U.S. first entered into a relationship with China in the 1970s, it was to stem the tide of Russia. In a role reversal, Russia and China are cooperating on a range of policy issues, including energy and security. [ii]
Europe
A decade of crisis leaves Europe in political disarray. Debt, refugees and Brexit have taken a toll. Britain leaves the European Union in March, changing the political underpinnings in Europe. Brexit is not only costing British Prime Minister Theresa May control but is likely to plunge Europe further into economic turmoil.
Nationalist political parties are winning favor in Europe, including in Italy and Austria. EU elections take place in May. German Chancellor Angela Merkel’s decision not to seek re-election marks a turning point in 2021, as Europe loses its most influential leader at a critical time. [iii] Merkel’s contemporary, Annegret Kramp-Karrenbauer, is slated to succeed her.
Impact of midterm elections & future legislation
The U.S. midterm election only served to widen the political divide as Democrats won the house and Republicans expanded their hold in the Senate. [iv] The “blue wave” was buoyed by the Democratic base, including white female voters under 30 years old. [v]
Democrats fared well in gubernatorial races, including wins in Wisconsin, Pennsylvania and Michigan — states that would be impacted by a protracted trade war. [vi] Other states relying on exports include Texas, Kentucky and Tennessee. [vii]
In several states, such as Maine and Kansas, incoming Democratic governors have promised to expand Medicare, and measures in Nebraska, Idaho and Utah also provide new benefits to poor families. [viii] Republicans still hold a commanding lead in state legislatures. Democrats lost 968 seats in local state elections during the Obama administration but are now making up ground. [ix]
Democrats do not have enough votes to block President Donald Trump’s judicial appointments. He has already appointed more appellate judges in his first two years than any other president. He is likely to turn his attention to foreign policy, where Dems have less ability to impede his agenda.
But President Trump lacks enough political capital to set his domestic agenda without the support of Congressional moderates. Democrats have unfettered subpoena power and are likely to use it to investigate the President and his allies. [x] As of this writing, the Mueller findings are unknown.
Immigration and employment
Expect Trump to use executive order for action on immigration. The government is approving fewer L1 and H1B visas. [xvi] It is expected that the government will revise the H1B program in favor of highly skilled workers. [xvii]
Employers on the West Coast and Midwest are starving for workers, and the U.S. immigration policy is only exacerbating the hiring crisis.
U.S. military
The U.S. military is conducting an exhaustive review of its supply chain out of concern that its suppliers would not be able to ramp up during a conflict. [xviii] The Pentagon notes the struggle of airlines to increase capacity. Going into 2019, U.S. aerospace and defense contracts have big increases in backlogs. U.S. military also faces significant cyber threats and is having difficulty hiring qualified cyber experts. [xix] They are leaning on the private sector and ramping up standards and audits.
Global trends
U.S. sanction on Iran may lack teeth without the support of America’s allies, many of whom are committed to the Iran nuclear deal. [xx] France has publicly called on European countries to defy the sanctions.
French President Emmanuel Macron’s call for a “European Army” is not taken seriously by most observers, who view it as a ploy meant to threaten Trump and the American socio-economic-military complex. Britain’s exit from the EU will reduce Europe’s military capabilities. Of NATO allies, over two thirds have committed to spend 2% of their GDP on defense. [xxi]
Trump is catching heat for inaction on Saudi Arabia. Should Trump break ranks, energy prices could be adversely affected.
Africa is a hotbed of economic activity, and China, Russia and others will try to influence its development. Internet connectivity is a boon to investment in education and local economies. [xxii] Corruption is still rampant in some countries with unstable political systems.
The winner in strained U.S.-China relations will be other Asian countries with low cost labor. There will be significant change in Asia in 2019, where there will be elections in India, Indonesia and the Philippines. [xxiii]
While economic strife continues in some Central and South American countries, Brazil is another potential benefactor. Brazil has already seen an uptick in demand of soybeans after China imposed a tariff. [xxiv] Economic strength could stabilize the politics within the region.
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