Re-emerging populism in the US and Europe is having a transformative effect on the West’s relationship with the rest world small business As a part of this shift, the global trade environment is showing signs of rapid change as well. Businesses need to track and adapt to these changes as they occur if they want to remain competitive in the global marketplace.
Small businesses that operate internationally are especially vulnerable, because they’re global trade less likely to be able to afford the time, labour, and money needed to comply with new regulations or to overcome new trade barriers. Fortunately, it doesn’t all have to be bad news, since investors are unlikely to leave their assets lying dormant during turbulent times at home. Let’s examine a few of the ways that the changing political climate in Europe and America could affect businesses in the coming months and years.
Anti-Globalist trade policies
Globalism is becoming a dirty word for right wing parties who explicitly championed globalisation just months ago. As “alt-right” movements gain power, more moderate politicians in their respective countries are increasingly bending to accommodate them. Newly ascended anti-globalist politicians as well as converted former moderates are promising to introduce new barriers to trade, including policies to discourage offshore production and foreign imports.
This is done with the intention of bringing production jobs home, but it could have a devastating effect globally as both importer and exporter countries scramble to adjust. Major manufacturing and export-based economies like China and Japan stand to lose an enormous portion of their markets, and it’s unclear if the US and EU would be able to develop the infrastructure they need to meet their own domestic demand.
Though Australia and New Zealand comfortably avoided the global financial crisis, an economic downturn like this would be a serious blow considering that China, Japan, the EU, and the US make up most of both countries’ most important trading partners.
Fracturing trade agreements
The Trans-Pacific Partnership is considered dead in the water, and TTIP is now also expected to fail. These two major agreements mark the stalling of what, up until now, was an unstoppable trend toward global market integration. Fortunately, these developments aren’t very likely to cause new problems for businesses, since these agreements were never put into effect in the first place. Unfortunately, existing agreements are also showing cracks.
Donald Trump has pledged to scrap NAFTA, and a leaked memo suggests he intends to go through with it despite some verbal hedging in interviews since the US election. On the European side, Brexit is continuing to cause immense confusion as politicians bicker about what Britain’s new trade relationship with the EU should be. As this goes on, other eurosceptic movements in France, Austria, and the Netherlands are gaining ground. In all cases, raising barriers that separate previously interdependent economies is likely to result in a massive recession and a spike in unemployment.
These developments could have much more serious consequences for business owners at the bottom of the world, and not just because they interfere with those countries’ ability to trade efficiently. Beyond their direct consequences, these crumbling trade structures are wreaking havoc on investor confidence.
Increasing market uncertainty
This type of slowdown in trade could seriously affect sharemarkets as investors become increasingly risk averse in the newly uncertain economic environment. Even before the Brexit vote, European investors began pulling out of the European market due to the overall lack of growth in the last decade.
Moreover, governments might be forced to use quantitative easing to control interest rates in the event of a significant recession. Even managed inflation can harm investors, who will increasingly seek to protect their wealth by buying hard assets, or investing in economies with more stable currencies. Even though this would slow down global investment in general, those economies that are likely to maintain better control of both their economies and their currencies, like Australia and New Zealand, stand to benefit from this.
Investors on the hunt
Every crisis is also an opportunity, and the loss of investor confidence on one continent can mean more available capital elsewhere. Even as businesses in Australia and New Zealand will have to work around turbulent changes with some of their biggest trading partners, they may find themselves buoyed by foreign investment. This will make it somewhat easier to explore new markets, find new suppliers, and diversify your investments as needed.
Business owners both big and small can look for ways to use this time of change to facilitate growth and become more resilient in the face of adversity. While the most significant changes in US and European trade policies are currently still just theoretical, business owners need to keep a watchful eye out, both to protect their businesses, and to seize opportunities when they come.
Businesses that rely on economies that are likely to be directly affected may want to look into preemptive steps to help mitigate their risks. These might include diversifying your operations to a broader market, or setting up financial fallbacks to help tackle any cash flow interruptions. Give us a call to learn more!