President-elect Barack Obama’s polices on trade and related issues will likely have a major impact on U.S. manufacturers, one expert says.

President-elect Barack Obama’s polices on trade and related issues will likely have a major impact on U.S. manufacturers, according to one economist.

Chris Kuehl, Ph.D., economic analyst for the Fabricators & Manufacturers Association said in the new FMA economic update newsletter Fabrinomics that three themes are likely to emerge soon after Obama takes office Jan. 20.

“Although President-elect Obama has had just a couple of weeks to start defining his approach, there are a few clues that bear monitoring,” Kuehl said. “In general, these are in the areas of trade, reactions to the recession and future regulations.

“Trade policies seem to reflect the Democratic Party’s agenda more than Obama’s, but he has yet to suggest that he will take a different position,” Kuehl said. “The notion is that trade is not necessarily a good thing and that the United States has a right to engage in protectionism. This position has provoked some real concerns from trading partners in Europe and Asia and some criticism from the likes of the WTO, IMF and various trade groups.

“Obama indicated he would look at all the current trade agreements and evaluate them, a statement that creates consternation among supporters of NAFTA (North American Free Trade Agreement) and CAFTA (Central American Free Trade Agreement), as well as those who seek better relations with Europe in general,” Kuehl said. “The impact on manufacturing will depend largely on where a given company stands. Those getting hammered by overseas competition may see some policies enacted that protect them, but those that have started to discover the joys of export are likely to see some of those markets slam closed.”

Kuehl predicts that the Obama team’s solutions to the recession will focus on fiscal issues instead of currency.

“In all fairness, the monetary approach has been pretty fully exploited at this juncture and there isn't much left for the Fed to do,” he said. “The IMF (International Monetary Fund) has been urging countries all over the world to engage in fiscal stimulus and many have reacted. China just dumped close to $600 billion into their own stimulus package and the United States is now considering what else can be done to bail out the auto industry.

“The Obama response to the economy will lean heavily on government spending programs despite the impact this will have on the federal deficit and the U.S. debt position globally. The Democrats also are seeking to keep some of their campaign priorities on the table, but that may prove much harder to do. If there is a major government push on recession it will likely take the shape of some kind of infrastructure development effort, and that could be a boon to the manufacturers serving that sector.”

More regulations are all but certain.

“The Fed is already more engaged in the U.S. banking system than ever before, and that involvement will likely expand,” he says. “The Treasury Department is already a part owner of most of the major banks in the country, a leading insurance company, and perhaps, in time, the Big Three auto companies. That gives the U.S. government a major stake in the performance of its largest companies, which will mean direction and advice.

“The real question is what else follows from this,” he said. “At the moment, the mood is waffling between micro-managing the economy, and establishing more transparency but leaving the markets to control themselves. The economic team that Obama has assembled thus far has elements of both positions, but the dominant players seem to be more free-market than not. A more control-oriented approach will slow the recovery of the banks and money markets, and will make access to credit challenging in the months and years ahead.”