Donald Trump’s view on trade and economic policies raises several questions about the consequences of the US vote for the global economy. Moreover, for Italian exporters the United States is third destination market (and first non-European market) with an import figures of 35 billion euro in 2015. Commercial repercussions of the new political set are then particularly relevant for Italian firms, that gave more and more attention to the US over past few years (relevance increased from 6.2% to 9.2% of total export between 2010 and 2015) and for the system of government support for internationalisation – by way of the dedicated initiatives under the Special Plan for Made in Italy as well as the usual promotional activities in terms of trade fairs and events.
A trade policy harking back to a pre-WTO 1980s status (Trump’s “Make America great again” slogan originated with Ronald Reagan) seems anything but compatible with the current system of multilateral regulations for which the United States themselves are guarantors today. For example, redefining customs tariffs at 1989 levels would undoubtedly raise costs for foreign companies selling to the US.
The estimate for Italian companies comes to over 756 million euro, or 2% of the current value of exports to the United States, with a particularly heavy cost for the Made in Italy sector (where duties are historically more substantial) and for mechanics (Italy’s largest export sector on the market). In any case, this is a hypothesis that – although technically possible – would amount to a frank rejection of existing institutions and multilateral relations. In a democratic system with balanced powers, such as that of the United States, a move of this nature could certainly not take place on the initiative of a single individual and its consequences would bring much further than only more difficult trade relations.
It is therefore more probable that the idea of a “muscular” policy stance on the part of the new administration will be implemented via mainly internal initiatives (public spending, immigration control), whose consequences for international trade will isomehow be indirect and actually not necessarily unfavourable to Italian exporters, at least in the short term. While a policy of growth will create new macroeconomic imbalances in the long term (twin deficits are, after all, not a novelty for Republican administrations), an expansive economic policy, for example, will first strengthen internal demand, providing supply opportunities also for international companies (consumption goods for lower taxed individuals and investment goods for infrastructural projects).
Some of the protectionist talk could certainly concern public procurement, but it must be remembered that even today government buying is worth little more than 15% of overall expenditure, of which only 4% is accounted for by foreign imports (data from the US Trade Commission on Government Consumption and Global Value Chains). As evidence of the aforementioned power of rules, recent history shows that even the “Buy American” clause inside Barack Obama’s American Recovery and Reinvestment Act had a complicated delivery, ultimately having to be adapted to the international regulations signed by the United States in the context of the WTO.
One of the main impacts on the international exchanges of the new administration will be probably related to the consequences of US policy for the value of the dollar (since the beginning of November the euro-dollar rate has passed from 1.11 to 1.06) and then to trade. Prometeia estimates indicate that if the dollar were close to equal to the euro throughout 2017, this would amount, ceteris paribus, to an increase for Italy of around 2% in terms of world exports. However, it would be necessary to subtract from this growth figure a higher burden of around 5% for procurement in euros of raw materials and otherimports .
Focusing on the effects on Italian exports, the potential gain comes first and foremost inside the United States itself, but also in all the international markets where Italian companies compete with US enterprises or with enterprises from countries with a fixed dollar exchange rate. Looking at the over 6,000 product/market combinations used by Prometeia to analyse global trade, it emerges that Italy and the United States are among the top five competitors in 15% of these areas. It is therefore reasonable to expect an improvement in Italian competitiveness following an appreciation of the dollar with respect to the euro. From the point of view of the individual sectors, those most affected by an overlap between Italian and US product markets are mechanics, food and beverages and fashion, all of which are extremely important components of the Italian export market.
*Both Italy and the United States are among the top five competitors on the market of the same microsector
In terms of markets, by contrast, competition between the United States and Italy is sharper in the American continent and in the Middle East. Among Italy’s top 20 export markets, Brazil and Canada are the countries with the greatest share of national exports in competition with US suppliers, accounting for more than 50% of Italian trade flows. Other markets that look favourable for Italian companies in the event of a weakening US competitiveness are Saudi Arabia, Korea and the United Arab Emirates. In Europe, by contrast, apart from Switzerland, competition with the United States is sharper in the United Kingdom and Russia. On both of these markets, their attractiveness will be anyway much more influenced, for better or for worse, by the purely political attitude of the US new administration regarding the major challenges (Brexit and international sanctions) the two countries will face in the coming months.