Take nationalist and populist resurgence, interest rate ups-and-downs plus currency devaluation, mix that with upcoming elections abroad and the incoming Donald Trump administration, and you’ve got a recipe for an unpredictable 2017.
While many still ponder the influence of a Trump administration, those who make a living weighing the effect of world events are already interpreting the tea leaves. José Rasco, chief investment strategist at HSBC Private Bank Americas, has spent 25 years in the financial community focused on analysis. He provided a glimpse of the next 12 months for WorldCity’s year-end Trade Connections event, held Dec. 9, 2016 at the Intercontinental Doral.
“Let’s start with some of the big drivers,” said WorldCity CEO Ken Roberts who remarked that the rise of nationalistic sentiment in the West is sure to be part of next year’s equation.
“We saw such a rapid shift,” said Rasco, adding that elections in Germany (where Chancellor Angela Merkel has decided to run again) and Argentina (legislative elections are set for 2017) and more consequences of Britain’s decision to leave the European Union are still to come.
Not all the upheaval needs to be negative, Rasco said, noting that if Trump fulfills his promise to cut taxes, the outcome could be positive. “Tax reform — if he means it and it works, and the repatriation of money works, we could be in pretty good shape,” Rasco said. Trump has promised to reduce personal taxes, corporate taxes and figure out a way to bring back home profits U.S. companies stash offshore.
What’s more, said Rasco, House Speaker Paul Ryan (R-Wis.) and incoming Senate Minority Leader Charles Schumer (D-NY) have been working on a bill that would dedicate such repatriated money to fund an infrastructure bill, which is an initiative Trump backs.
The U.S. economy looks pretty good, Rasco said, and the tradeoff of tax relief could be rising interest rates. “I suffer from a case of secular optimism,” he said. “I think we are at the beginning of a tech revival being led by this country.” On the other hand, the strong dollar is a profit-shearing headwind for the U.S. exporting community.
An interconnected world, in trade and beyond
“With all these things swirling, what does it mean for trade?” asked Roberts.
The question is how Trump will ultimately address trade, Rasco said. For one, Trump has promised to revisit the North American Free Trade Agreement, and he has threatened to impose high tariffs on imported goods from U.S. firms who move factories to Mexico. “It’s a sad reality for people who love free trade,” he said.
“If our president elect follows through on everything he said, it’s bad news for Mexico. It could, he added, send into recession many areas with U.S. auto plants, which have intricate ties with suppliers or sister firms in Mexico. “My hope is that a lot of the rhetoric is an ability to get to the bargaining table.”
He noted that China, seeing an opportunity, has of late been investing in Mexico. “The Chinese are great in finding value,” he said.
Meanwhile, though those at the top of the income ladder will continue to do well, the United States is undergoing a quiet technology revolution. It will, Rasco said, rival the disruptive effects of the internet.
“Can you expand on that?” asked David Kazel, senior manager, Centric Consulting LLC.
“It’s going to be a product-enhancing revolution, from supply chain to final goods,” Rasco said, giving a few examples of disruption. He told of a recent conversation with a chemical company executive who relayed a visit from a global shipper who offered tailored service, starting in the factory itself. The shipper didn’t want a fee, but suggested a revenue-sharing scheme.
“Lyft, Uber can’t wait for driverless cars,” he said, but that means big changes for automakers; 3D printing will drive down imports and change manufacturing, and Big Data will drive massive change as well. “Tech will eventually replace many of us,” he said, alluding not to the physical bodies of his audience, but to their jobs.
Still, he said, machines can’t yet interpolate and read between the lines, so many professionals don’t have cause for worry.
Latin America: Argentina, Brazil poised for an upswing?
Roberts asked Rasco to talk about the outlook for some of the Latin American countries most important to the South Florida business community, such as Brazil.
“That’s a tough one,” said Rasco. Brazil is in for a turnaround, but things are moving more slowly than might be hoped. “The direction is positive,” but politics is still in an upheaval and that will make a difference, he said.
Argentina also is on the upswing, but both countries still need dramatic political reform. A continuing rise in commodity prices would be good for both nations, he said. However, if there’s a global upset, such as a tanking U.S. housing market, or problems getting U.S. infrastructure going, he said, both Argentina and Brazil could be losers.
Members of the audience wanted to know more about energy in the face of Trump’s favorable stance toward exploration for oil, gas and other fossil fuels.
“Wouldn’t you expect the price of energy to come down?,” asked Jay Gumbiner, director for consumer and commercial device research at IDC Latin America.
“The problem is the oil market,” Rasco replied (oil prices have hit record lows in the last year or so). “The inventory of oil floating around on tankers in the ocean is monumental,” he said, with shipping costs so low that leaving the oil at sea is more cost effective than bringing it to shore. “The potential disturbance there is that you will see lower, not higher oil prices.”
Will Trump be pragmatic on Cuba?
“I would love to hear your comments on the possibilities of what will happen in Cuba,” said Barbara Pimentel, executive vice president/director at Florida Customs Brokers & Forwarders Association. Trump has been critical of President Obama’s normalization policies with Cuba.
“I think he (Trump) is a pragmatist,” replied Rasco, who emphasized that his remarks reflected his personal opinion, not the position of the bank. However, he added that he believes Trump will revisit some of Obama directives.
What, wondered audience members, do you expect Trump will focus on in the end?
“I think Donald Trump is not a politician, he is a businessman,” Rasco said, adding that it is clear he will attempt to get faster growth and lower taxes. Making infrastructure projects a reality would be positive as well.
“Infrastructure is a great story,” he said. “It is the free lunch, increasing jobs, wages, income, creating wealth and making the economy more productive.”
Trade Connections is one of four event series organized by media company WorldCIty to bring together multinational executives in greater Miami. The Trade series is sponsored by American Airlines Cargo, PortMiami and Miami-Dade County Aviation Department.