The first year of Donald Trump’s presidency has had more than its share of high drama, bold rhetoric and mass confusion. But how much of this excitement has transformed into actual policy? More importantly, which policies and proposals from the Trump administration will affect the diamond and jewelry industry?
Overall, the US leader’s “pro-business” positions, deregulation, and the recent passing of a wide-ranging tax law have earned him high marks among those involved in the retail and luxury industries. They also credit the US president with much of the stock market’s historic rise.
“I don’t see any negatives,” says Milton Pedraza, CEO of the Luxury Institute consulting firm. “Trump’s policies, tax cuts, deregulation and very strong pro-business stance have allowed for more money to flow into the economy. And there’s no sign of inflation. This in general would favor an increase in demand for consumers of luxury and all types of jewelry.”
Beneficial cuts
Trump’s major legislative accomplishment is the Tax Cuts and Jobs Act, a broad piece of legislation whose true impact is still being debated. Not up for debate is that the law has drastically reduced the corporate tax rate from 35% to 21% for businesses and cut taxes to a lesser extent for workers. There are other tax reductions as well for corporations and small businesses. These cuts have drawn praise from luxury consultants and trade associations, which say putting more money into more people’s pockets is good for consumers and retailers.
“We’ve been very happy with the tax reform measure signed into law, and we think the retail industry and consumers alike are going to benefit,” says J. Craig Shearman, vice president of government-affairs public relations at the National Retail Federation, the world’s largest trade association representing retailers. “It’s one of the most significant pieces of legislation in decades and extremely beneficial for the economy.”
In particular, he points to the advantages of consumers having more money to spend. “A consumer who walks into a store with money in their pocket is going to buy something,” he says. “That may be more important for retailers than the tax cut.”
Pam Danziger, founder of research and consulting firm Unity Marketing, says things are looking good for luxury retailers in 2018.
“We see a positive feeling going into the new year, and a tailwind for the luxury consumer and those marketing to them,” says Danziger, whose company specializes in luxury goods and services. “Overall, signs are good from a broader economic perspective. Whether that translates into people buying more jewelry or diamonds is another question. There are signs they are going in that direction.”
Cause for concern
However, the law is also expected to add $1.5 trillion to the US deficit, which has caused some concern even among pro-business, pro-market supporters such as Danziger.
“If people do see more money in their paychecks, that will be very good for the consumer and for their willingness to spend,” she says. “But from a broader perspective, fewer taxes coming in means greater deficit spending and owing more money to other countries. We’re going to have to pay the piper.”
Meanwhile, Trump’s positions on international trade have sparked concern as well. This is mostly from his bold protectionist rhetoric and his willingness to back out of trade deals such as the Trans-Pacific Partnership (TPP), as well as his threats to end the US’s participation in the North American Free Trade Agreement (NAFTA). His tone has been particularly harsh toward China, Germany and South Korea, where the US has trade deficits. This rhetoric was popular on the campaign trail, but does it make good policy?
“We favor free and open trade, and we want to see trade barriers eliminated rather than created,” Shearman says. “We were disappointed to see the US pull out of the TPP. On NAFTA, there is room to modernize it in a way that does no harm to the US. We shouldn’t pull out of NAFTA.”
‘Disruptive’ comments, limited effect?
Ken Roberts, who specializes in analyzing export-import data and is president of media and event company WorldCity, says the influence of the Trump administration has been limited so far when it comes to world trade. However, he warns, there is potential for damage if the president’s rhetoric becomes reality.
Imports and exports of unmounted diamonds were down 5% and 3%, respectively, for the first 11 months of 2017, compared with the same period the year before, according to WorldCity data. However, Roberts says there’s no indication it had anything to do with federal trade policy.
“Trade [overall] is looking pretty good, and the global economy is doing well. It’s hard to suggest there’s been a big influence on the flow of trade since Trump has been president,” he remarks. “He is disrupting traditional approaches to imports and exports, trade agreements, the World Trade Organization and other areas. Right now, the US has trade agreements in place. I think the primary effect on trade and trade policy has been the spirit of his comments, and that has at the least given people pause.”
However, he adds, “I remain an optimist. The impact of Trump’s policies is potentially disruptive and destructive. My hope is that they won’t be.”
The impact on jewelry
Danziger says her most recent survey of luxury company executives revealed worries about trade issues and about general political instability in the US and Europe.
“The number-one biggest challenge is political turmoil and instability. The second-most challenging trend is the impact of monetary and global economic policies,” she says. “So much jewelry and raw materials come through foreign trade. Indicating a less-open-door policy for foreign trade could have a very big impact if it’s more expensive to bring in foreign-produced goods and materials. We are a global economy. What happens here and in Europe will ultimately affect many brands, and that will affect the global marketplace.”
Pedraza, however, believes that despite Trump’s bombastic statements, he will be pragmatic in trade policy. Any restrictions on products entering the US have been limited to industrial items like solar panels, and Pedraza doesn’t expect that to change.
“I don’t see any tariffs being placed on jewelry or watches,” he says. “Chinese and American economies are so competitive and interdependent, you don’t want to mess around too much, and that’s good news. They are ‘frenemies.’ I just don’t see any major trade sanctions or anything that will disturb the flow of goods. It would be suicidal.”
Besides, he adds, “I think money is important to Trump. It’s not an area where he’s going to tread or get in the way. If there’s one thing you can say about Trump, he’s pro-growth.”
Image: Shutterstock.Article from the Rapaport Magazine - February 2018. To subscribe click here.