What does Trump’s presidency possibly mean to the retail market?

December 15, 2016 3 mins read
What does Trump’s presidency possibly mean to the retail market?

Given Mr. Donald Trump’s elected president status, there are some waves in the market within the American continent and across the globe.

We all know that all it takes to shake up consumer confidence is economic uncertainty; Mr. Trump certainly created a certain level of uncertainty in the market;

Uncertainty One: What will the deportation of millions of illegal immigrant do to the US consumer market?

Based on an extensive analysis done by the Morgan Stanley Research Foundation, the cost of deportation of this hugely underrated population may be greater that we thought;

 “The U.S. consumer spending power due to the elimination of undocumented workers, which are estimated to be about 5 to 10 million people, pose more harm than good to the retail business potentially”, it means sharp decrease of low-wage workers and consumers of lower-quality  products. Even with Mr. Trump’s proposed plan of reducing personal and corporate tax, the harm could be so great that it will counteract the benefits of reduced tax, according to Morgan Stanley US consumer economist Paula Campbell Robert.

The other factor that contributed to the heightened uncertainty is Mr. Trump’s isolationist stand on US foreign policy, and proposed plan to implement higher tariff on Chinese imports. His opposition to TPP and NAFTA raised serious concerns of US import business, and especially to industries that rely heavily on foreign-imported parts. “Given the candidate's positions on global trade and international relations, a Trump presidency could arguably raise both geopolitical and policy uncertainty, which may have implications for consumer spending",  Roberts says.

A little case study here, back in 2009, President Obama pledged to raise US Tariff on China, by 35 percent, claiming he will save thousands of domestic production jobs for Americans. In 2012, he proudly announced this achievement at the State of the Union Address, celebrating the success against foreign labors. However, based on an extensive study done by The Peterson Institute for International Economics, this action saved the maximum of 1,200 jobs to stay in America, but it came at the cost of $1.1 Billion dollars to the tire industry in 2011 alone, which means for each job President Obama managed to ‘save’ in the US by posting high Tariff, this cost the tire industry $900,000.

If Mr. President-Elect Trump continues on President Obama’s path to save American jobs just for the sake of the act alone, any potential benefit could come at a hefty price. Let alone the high inflation possibilities on the domestic market due to the restricted trade channels.

And of course, there are other factors that could impact the market and especially consumer confidence, factors such as education, healthcare, social security etc. and Mr. President-Elect’s potential repeal of Affordable Care Act aka Obama Care could shake that tree up a little as well.

Where does China stand from all of these. Rio Goh, Managing Director at Morgan McKinley China, predicated that “giving Mr. Trump’s waving statements and policies, consumer confidence in the U.S. domestic market could be shaken, and with Mr. Trump’s promise to keep more factories in the United States, companies who rely heavily on foreign manufacturing such as Apple, their product prices could go up, and that would make their direct competitors more welcomed in the Chinese market.”

Leezia Yin, Morgan McKinley China Retail & Luxury team leader, added that “given Trump’s attack on China’s currency “manipulation” it’s likely RMB will rise against US Dollars; hence Chinese shoppers will more likely shop overseas and that would lessen consumer spending of foreign goods in the domestic market.”

How will Mr. Trump’s presidency affect retail market, both domestically and globally, is a big question mark hanging over that only time will tell. 

Marlon Mai's picture
Managing Director, Greater China
mmai@morganmckinley.com