Despite uncertainty regarding trade and the potential impact of Brexit, U.S. companies are bullish on international business and emerging market opportunities, according to the fourth annual Wells Fargo International Business Indicator. Citing a number of macroeconomic factors, including a strong U.S. dollar and U.S. economic conditions, 81 percent of U.S. companies expect their international business activity to increase during the next 12 months, up from 64 percent in 2016. Capitalizing on a positive international business environment, a majority (68 percent) of U.S. business leaders also expect their international revenue to increase, up from 58 percent last year.

Released today by Wells Fargo & Company (NYSE: WFC), the Indicator registered a score of 74 —marking the highest result since the Indicator’s inception in 2014 and a nine-point increase since last year. The Indicator tracks the strength and direction of the international business outlook of U.S. companies and is based on a survey of more than 280 business leaders who represent U.S. companies engaged in international business that have annual revenue of at least $50 million. The 2017 wave also marked the first year the Indicator was conducted during a U.S. Presidential election cycle, with fielding beginning after the Election and concluding just after Inauguration Day.

U.S. companies continue to invest in the global marketplace

Anticipating an increase in international activity, 81 percent of U.S. companies also believe the international component of their business will become more important in the next 12 months, up from 54 percent in 2016. To support their international business growth, companies also expect to increase global marketing activities (79 percent), volume of imports (63 percent) and volume of exports (55 percent).

As U.S. business leaders look to international markets for long-term growth, they also overwhelmingly (95 percent) agree that identifying and targeting emerging markets is critical, as those markets are perceived to offer the greatest revenue growth opportunities. According to the Indicator, additional factors impacting a company’s international strategy include foreign exchange rates (97 percent), U.S. corporate taxes (91 percent), and the low U.S. interest rate environment (86 percent).

“As factors including trade, currency and exchange rates, and corporate tax rates shape a company’s international strategy, U.S. business leaders continue to recognize the ongoing value in doing business internationally and are confident in pursuing global business opportunities as a core part of their long-term growth strategy,” said Sanjiv Sanghvi, Middle Market Banking West Region head.

The Trade Factor

Despite an increase in overall optimism, the Indicator found that U.S. companies are concerned about trade and potential changes to existing trade pacts, with 86 percent of survey respondents agreeing that the failure of trade pacts will impact their business somewhat/a great deal. Seventy eight percent of U.S. business leaders were somewhat/very concerned about the growing negative attitudes towards trade agreements that were portrayed during the 2016 Presidential election cycle. Additionally, when asked about the importance of specific trade pacts to their international business, the Trans-Pacific Partnership was listed as the most important (80 percent), followed by the North American Free Trade Agreement (74 percent), the Transatlantic Trade and Investment Partnership (73 percent), and the Dominican Republic-Central American Free Trade Agreement (56 percent).

“There has been a definite surge in optimism since the election. The durability of that optimism will be tested as key issues like taxes and regulation are addressed. Outcomes around trade policy and negotiations are critical to firms with international business and will determine the sustainability of that optimism,” added Chris Barnes, managing director Financial Services for Market Strategies International, the research company that led the survey activities on behalf of Wells Fargo.

“Wait and See” with Brexit

Following the U.K.’s vote to leave the European Union, business leaders across the globe have been examining the potential impact Brexit may have on their international strategy. While 68 percent indicate business relationships in the U.K. and across Europe are important, a majority of U.S. companies don’t expect Brexit to impact their business in the region, with only one-third (32 percent) saying Brexit would affect their business. When discussing the factors that would impact their international business a great deal as a result of Brexit, respondents listed increased regulations of transactions (38 percent), less favorable tax policies (26 percent), U.K./EU recession (23 percent), weakening British pound (21 percent), additional regulatory complexity with a separate U.K./EU system (15 percent), and protectionist trade policies (13 percent).

The majority of U.S. business leaders say they are taking a “wait and see” approach before developing plans post-Brexit. Fewer than 10 percent of respondents indicated they would explore alternative markets as a result of Brexit, with the majority setting their sights on Canada (35 percent), Japan (29 percent), and China (23 percent).

China Remains No.1, Canada and Mexico Move Up

For the fourth consecutive year, as companies look to the future, China remains the top “hot spot” for future growth. Citing its rising consumer spending power, 41 percent of U.S. companies say China will be important to their future business success.  Canada, which had fallen out of the top three in 2016, is now tied with China at 41 percent, followed by Mexico with 32 percent. It is also likely no coincidence that the top three countries also have the largest trading relationships with the U.S. — equal to about $1.9 trillion in imports and exports with the U.S. over the past year. Rounding out the top five markets are Japan and Germany. Likely due to its economic growth in late 2016, Japan jumped to fourth, from 15th in 2016, with 21 percent of U.S. companies citing it as a key market for future growth.

Events impacting international business decisions

When assessing international markets, U.S. companies indicated several events that would negatively affect their international business plans, with the majority of companies (91 percent) listing cyberattacks as the top concern. Political stability outside of the U.S. was also a top concern (83 percent, up from 58 percent in 2016), followed by potential interest rate increases by the Federal Reserve (80 percent, up from 42 percent in 2016).

For more information on the Wells Fargo Indicator, including a complete report of the findings, visit Wells Fargo International Business Indicator.