Donald Trump’s visit this week is a timely reminder that Brexit is not the only big change taking place the global business environment. At the state banquet in Buckingham Palace, the Queen reminded the President of how the UK and USA had worked together after the Second World war “to build an assembly of international institutions” and that their purpose remains relevant today. These institutions include the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organisation (WTO).
The Queen’s comment comes at a time when the WTO’s authority, and the established international system for managing trade disputes, is increasingly under threat and we appear to be entering a new era of trade wars that will affect businesses trading internationally and global supply chains.
President Trump announced tariffs against imports from Mexico last week - not on trade grounds but under the auspices of a national emergency linked to immigration. Trade policy experts tell me this is not legal under WTO rules - but there is unlikely to be any swift action against it. It is part of a wider breakdown of the rules-based international economic system which business has grown accustomed to.
Tariffs on Mexico may be imposed as early as Monday. This is not an isolated incident.
The White House recently announced it is developing measures to protect the US automotive industry and reduce imports of cars and car parts (including from EU / UK) on the grounds of national security. This follows similar measures on steel. It looks set to bring the EU into the trade war and affects UK automotive manufacturers and supply chains.
The USA is also removing trade preferences from India.
Alongside this we have seen US measures taken against Huawei and businesses who supply the Chinese tech giant. And China is preparing retaliatory measures against those businesses who stop supplying Chinese businesses in order to comply with the US measures and threatening to block the supply of rare earth minerals needed for technology manufacture.
This is not normal. Whilst the WTO may have stalled in its ambitious global trade rounds for the last 15 years, we have seen bilateral and regional agreements to remove trade barriers.
We are seeing the start of a new global trade war - with tariffs being used for wider policy objectives (notably control of new technology).
The escalation of trade tensions (and tariffs) between the USA and China is seen by many commentators as the start of a new Cold war.
Nor is this approach confined to the republican Trump administration. This week Joe Biden, front runner for the race to be 2020 Democrat presidential candidate, published a climate change plan that includes the use of tariffs against carbon intensive products from China and elsewhere.
A trade war is underway and it threatens to develop into a full blown economic and technology cold war. This creates risks for businesses caught in the crossfire, especially those for whom USA, China and Europe are key markets.
Businesses need to assess the impact - on your supply chain and markets. Business can reduce the impact of trade wars by reviewing their customs processes and mapping their supply chain. The customs experts I work with say that one of the best ways to be prepared mirrors preparations for Brexit: review your customs processes and make sure you capture data on the origin and valuation of product and components.
Being able to prove the precise origin of components can make a big difference in terms of tariff paid. And mapping the impact across your supply chain can then inform any decisions around re-configuring operations and sourcing to optimise costs.
In a climate of trade wars, it also becomes important to assess the potential impact on customers and markets (both direct impact eg on B2B customers and indirectly on economic growth rates and inflation in markets), consider where your business model may provide opportunities over your competitors, and assess the impact on any M&A plans or across investment portfolios.
A trade war is underway and it threatens to develop into a full blown economic and technology cold war. This creates risks for businesses caught in the crossfire. Business can mitigate the impact by reviewing their customs processes and mapping their supply chain.