Trump's isolationism is bad for business

Trump: Travel ban working out very nicely
Trump: Travel ban working out very nicely

President Donald Trump's historic win ushered in a huge boost of economic optimism. The stock market roared. Consumer confidence hit a 15-year high.

But after just one week of governing, there are already second thoughts.

Trump's executive order Friday banning refugees (and other visa holders) from seven countries from entering the U.S. renewed fears of whether Trump's agenda is slowly cutting the U.S. off from the world.

Isolationism isn't good for most businesses. And the message from business leaders is coming in loud and clear: This ban hurts business. CEOs of major American companies like Netflix (NFLX), Google (GOOG) GE (GE), Goldman Sachs (GS) and Ford (F) quickly decried the order.

Wall Street also sent a powerful message Monday as the stock market put in its worst performance since the election. Up until last week, many on Wall Street and Main Street focused on Trump's plans to cut taxes, spend more on roads and bridges and scale back regulations.

But Trump's executive order Friday threatened to derail the momentum. That along with the talk of 20% tariffs on Mexico (or other countries) is bringing back fears that America's ties with the global business community are under siege.

"American business and the American president are now at odds. It is impossible to be a successful global corporation with the 'Trump Wall,'" wrote Peter Atwater, president of Financial Insyghts in his note Sunday.

Here's a rundown of how bad it could get for the U.S. economy if Trump pushes forward with an isolationist agenda.

Related: Trump's travel ban: Companies and executives speak out

1. Loss of top talent -- America wins in business because it has been able to attract a lot of the top talent from around the world. Companies like Apple (AAPL), eBay (EBAY) and Oracle (ORCL) were founded by immigrants or the children of immigrants from countries that are part of the Trump immigration ban.

Friday's ban is already preventing PhD students, doctors, researchers and business leaders from returning to the U.S. or traveling abroad. Google (GOOGL), for example, says at least 100 of its employees are impacted. Beyond the immediate impact, the ban might cause talented young people who were to go elsewhere. Canada has been quick to put out the welcome mat.

Get ready for "unintended consequences" wrote Mahamed El-Erian, chief economic adviser at Allianz, on LinkedIn, "that ultimately could prove counterproductive and harmful to national security, the economy, and America's moral authority, values and standing in the world."

Related: These companies wouldn't exist if it weren't for immigrants

2. Big American brands and tourism could take a hit -- Goldman Sachs has already sent a note about the "growing risks to global trade." The bank recommends that clients invest in companies that are smaller and doing most of their sales in the U.S. Translation: America's big global brands could suffer.

A company like Apple has over 200 suppliers around the world, according to Macworld. Anything that prevents the flow of goods or people across borders will cause upheaval.

On top of that, tourism makes contributes about $1.5 trillion a year to the U.S. economy (roughly 8% of GDP), according to the World Travel and Tourism Council and U.S. government data. Friday's ban and the ensuing chaos at U.S. airports over the weekend could cause foreigners to book trips elsewhere.

Related: Will Trump kill the Trump rally?

3. A trade war -- No foreign country will send a thank you note to Trump if he enacts tariffs on foreign goods coming into the U.S. They will retaliate. Mexico is already talking tough about a rapid response, and China's army went as far as to warn the risk of war as "more real" over the weekend.

This is exactly what Republican business executives like Mitt Romney and Meg Whitman warned about almost a year ago. They said Trump could send the U.S. into a recession if he cut America off from the rest of the world with walls, tariffs and severe immigration restrictions.

It hasn't happened yet, but the possibility is growing that it will.

This could have a swift impact on American jobs. For example, 6 million U.S. jobs depend on trade with Mexico alone, according to the U.S. Chamber of Commerce. And experts are already warning that costs will go up for many goods if Trump implements a tariff (another word for a tax).

Related: The tech firms fighting Trump's travel ban with cash

4. Uncertainty could return rapidly -- There's widespread consensus that the refugee ban was poorly planned and implemented. It raises questions about how well prepared Trump is to tackle even bigger issues.

"The net result is more uncertainty and jitters among investors," says Naeem Aslam, chief market analyst at Think Markets UK. Stock market volatility -- known as the VIX -- jumped 17% Monday, although it's still at very low levels.

On top of that, the message from the business community to Trump since the election has been: Focus on tax cuts, lowering regulatory hurdles and infrastructure. Now there is concern that Trump is focused on the wrong priorities. That breeds greater uncertainty as well.

"The one issue that matters the most for Wall Street -- tax reform -- isn't on the front burner, and could get delayed amid the furor over immigration," says Greg Valliere, chief strategist at Horizon Investments.

One of the key economic problems under President Obama was that businesses sat on cash and didn't invest much in the future. They won't do that now if they see too many risks.

Related: A 20% Mexico tariff would pay for the wall. But it would hurt Americans

5. China may seize this opening -- China is already trying to take advantage of Trump's protectionism. Chinese President Xi Jinping delivered a robust defense of trade and globalization in a major international speech at the World Economic Forum in Davos. It's a glaring contrast to Trump doubling down on his calls for "America First" policies.

In his first week in office, Trump also pulled the U.S. out of the Asia-Pacific trade deal known as TPP. That opens a big door for China to be the leader in negotiating a broad Asian trade pact instead.

It remains to be seen what other opportunities Trump may give President Xi. If, for example, Trump doesn't show up to global meetings like the G20, that immediately makes China's voice more powerful on the global stage.

Of course, foreign businesses trying to operate in China still face a lot of "hostile" hurdles. China's talk of free trade isn't always backed up by its own policies.

But the bottom line is if the U.S. puts up more trade barriers, the world's No. 2 economy will look more attractive. China is already signaling it's pulling out the welcome tea. That could have repercussions for years to come.

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