Agree with it or not, believe in it or not, President Donald Trump’s massive new tariff regime promises to reshape the entirety of global trade and could plunge the economy into a downturn in the process. Stock markets around the world dropped on the details of his plans Wednesday and CEOs in every industry sought to assess how the changes might impact them.
For many, the news was a shock, even if the president had been telegraphing his intentions for years. In talking with CEOs and board members since Trump came into office earlier this year, I’ve found a common thread of expectation: Trump’s threats of tariffs were “a negotiating tactic” and “Trump being Trump.” As more than one put it: “He’s a dealmaker. This is part of that.”
One person not in that camp: Ram Charan. The bestselling author, advisor to CEOs and boards around the world and longtime contributor to Chief Executive had spent a great deal of time digging into Trump’s thinking and the thinking of those closest to him, and has been telling those who would listen—for well over a year—that Trump was dead serious about his tariff plans. This go-round, Charan insisted, would be far different than last time he was in the White House.
During a very public session in November at our CEO Leadership Conference, he laid out, in painstaking detail, the likely way Trump would use the tariff regimes of other countries as an organizing plan for hitting back at them. He said the president saw global trade deficits and foreign tariff regimes on U.S. goods as a “rip-off” to U.S. companies which had hurt U.S. manufacturing and national security over decades, and would not be dissuaded from going after them. In short: He listened to what Trump was really saying and he took him at his word.
I reached Charan in London early Thursday for his reactions to the tariff announcement, what he thought would happen next and what CEOs should be doing now. The following was edited for length and clarity.
Most of the CEOs I know—whether they voted for Trump or not—have been saying that tariffs wouldn’t happen. That this was just “Trump being Trump,” that this was a negotiating tactic. Not you. You called this way back. How did the rest of us get it so wrong?
Most people are still in the dark, unaware, don’t understand. Ninety-five percent of the people I meet, they think Trump is wrong. It’ll never work. And they have never understood what it is that Trump is trying to accomplish.
Even though the short-term consequences for a period of a year could have negative impact on the American economy, it’s a new way to bring countries to fair play in trade, reduce America’s deficit and stop giving fuel to other countries to attack America by building their militaries and building large industrial capacities and selling at marginal prices in America so that Americans don’t invest money in building industries and factories and becoming a prisoner of their exports. This connection has been missing.
Given how clearly you called this, what’s your sense of what happens from here?
From here on, the number of calls per day to Mr. Trump is going to increase exponentially. Everyone will want an exception and Trump will negotiate. You want an exception? I’ll give it to you. What are you giving me in return?
That’s what’s going to happen. If somebody makes a change he wants and believes that this change will take place, he will give them time to execute that.
Primarily this is about 10 countries. He is not going to spend his time on the small countries or the small situations where the deficit is small, unless that country has a precious mineral or precious material that we need to have. Makes sense.
For an average CEO In the United States, what’s the play now? What do you think they should do?
Look at the industries and products that are needed by India, by Japan, by Europe. They have been uncompetitive on price; that may change. Look at the countries that need American know-how and don’t trust the know-how of China and therefore there are investments to be made there. Because no matter what the press says, as I travel, people trust America. The government of that country may not trust America, but the people do. And they know the alternative—China—is not attractive to them.
What about the next few months, so we come out the other side stronger? Because it is going to be a rough year. What do we need to be doing in that year?
Most important: Stop looking at the stock market. It has to go down. It was totally artificial. You’re getting cheap prices from China and other places sowing large profits. That is going to go away over time. Equating your mind to the stock market is not a great idea. It has to go down, it’s going down.
It’ll go down until the correction of the tariffs begins to take hold and people are coming here building factories and investing money. That will be seen more clearly by about October, November. There will be more trust that the pledges are real and they’re not baloney.
Meanwhile, look into your products’ value chain. Is it one that is going to command reciprocity, tariff arrangements and currency adjustment? Many products are not going to be in that category. Automotive is one of them. Textile is another one. Key electronic machinery is another one. So look at these categories that are most significant. Download all the imports, exports by category, see which ones are more important, more significant. That’s where the negotiations will take place.
What about those who aren’t in manufacturing—retailers, restaurants, there are a lot of places that are really going to take it on the chin if customers pull back? If there’s a good chance we’ll end up in recession over this, what should they do?
This is psychology and confidence. Any country that has a lot of debt and volatility and a stock market where people have invested money, it adds to the psychology of anxiety, fear and pessimism. It is going to happen. It’s happening now. You’re going to rise above it. When the tax cut comes in, if it is a good one and it is effective, that will try to smooth that part of it.
Consumption has not yet declined. It’s the press and everybody else talking about this will slow down, we’ll have a recession. Not quite yet. And the recession definition is just plain wrong. Two quarters zero GDP growth or minus? No, you have to go sector by sector.
So bottom line, what is really essential for CEOs reading this today? What’s the essential thought that people should have going into the weekend?
Number one: Get your mindset and psychology right. Unless you have extraordinary debt, or you have a liquidity problem, don’t be anxious. Number two, do the cash flow analysis right away. Know which products, which supply chain inputs are going to be affected. Do you have to advance those items? You probably have been doing that already.
Watch your receivables, the normal stuff. Then start thinking about pricing right away. Go product by product, country by country and see if a particular product you have that you import will be subject to the tariff negotiations.
Certain things will be encouraged to export out of America. How do you fit in the supply chain? Because many of the clients of Chief Executive are suppliers to B2B, start thinking, what do you have to offer at a better cost, a better quality, to which countries? What tariffs will help you grow? Don’t invest in factories yet but get your product acceptable to the other country.
I have to say, I hope you’re right. I’m a “free people, free markets” guy going way back and I have my doubts.
Most people are free market people, and this is hard to swallow. It’s not just you. I have not heard any economists supporting it. All I can say is: Watch the facts, watch the journey.
