Over the Christmas and New Year period, we will be featuring a daily favourite article from each month of 2016, which should take us nicely up to January 8th when we assume everything kicks back into gear! In November, everything was overshadowed by the shock win for Donald Trump in the USA.
Yesterday was “Trump Day” on our Spend Matters UK/Europe website when we published several articles looking at last week’s US election and what it might mean for business people in Europe. Today, on Public Spend Forum, we will consider those specific points and issues that may impact on public sector procurement in Europe particularly.
Trade and protectionism
The most immediate and obvious set of questions are around trade and the linked issue of protectionism. One assumes that the chances of the TTIP (Transatlantic Trade and Investment Partnership) agreement being signed now is between zero and very low. Even a few months back, the agreement was looking in doubt, as we said here. During the Presidential campaign, Trump was very strongly against this, as part of his arguments for bringing jobs back to the US. So unless there was a huge movement in the TTIP content in the favour of the US (and we cannot see the EU agreeing to that) it is hard to see how he could swallow his previous rhetoric and approve it.
More widely, Trump has threatened to put huge tariffs onto imports from countries he perceives don’t play fair in the international trade landscape – China being top of his list. That may herald a more generally protectionist mood, which could in time have impact on Europe too. IF protectionism at continental and national level grows, we may see more pressure too in the public procurement world to buy local / nationally / regionally. Even US firms with a strong base in Europe and a lot of public sector business – IBM, Boeing, Microsoft – could see a backlash hitting their business and “buy EU” or “buy UK” type movements building in strength.
Some of our commentators on Spend Matters yesterday expressed hope for the new President at least in the sense that he is perceived as being much more “pro-business” than Clinton or indeed Obama. He has talked about pulling out of climate change agreements; allowing more oil drilling, mineral and coal mining; cutting the burden of red tape; reducing corporate taxes and so on. Now whether this is achievable is questionable; but let’s say he does at least some of these. We may not agree with them personally, but they will make the USA more internationally competitive. Europe may find itself the only major trading bloc that is still putting more and more restrictions on its own businesses.
That could all in time have an effect on the European economy, and we may see a tension in terms of whether we have to follow the US line and become more business friendly, cut regulations, and focus more on being able to compete on cost. Trump may make investing within the US more attractive for US firms, which could also have a negative knock-on effect on multinational investment in Europe.
There is a knock-on effect on public procurement. We have seen more and more focus on the “policy” side of public spend rather than pure cost. The two aims are not necessarily working in different directions; but if we see the global picture getting tougher, might we see public procurement being re-focused more around reducing costs rather than supporting sustainability, equalities, smaller firms…? It may just be a question of emphasis, but this would not be unexpected.
Trump has threatened to stop supporting fellow NATO members, which would be a huge change in the geo-political security landscape. And not a good one for much of Europe. But he has a point when he says that some countries aren’t contributing enough and are too reliant on the US stumping up for a huge proportion of the bill – that is true of both Japan and Germany for instance, who certainly benefit from implied US military protection.
For instance, NATO countries are supposed to spend 2% of GDP on defence; many don’t. The US spends 3.3% of their GDP on defence; in Russia it is 5.0%. The UK and France just about make it; but for Germany, the figure is 1.2% and Japan 1%.
So we can see Trump’s point here. We suspect his threats towards NATO are more of a negotiation position in terms of getting the allies to put their hands in their pockets and invest, but it is a justified and good position really. That means more defence procurement and expenditure; more talk of sharing resources and maybe even European forces, which Jean-Claude Juncker is already proposing. We are already seeing defence spend in the Baltics going up; that may spread to many other countries in coming years.