Exporters worldwide may have to brace themselves for impact: the United States and other key countries and regions are plunging headlong into an all-out trade war, and it’s a war threatening to go global. Starting early this year, the US has imposed or threatened tariffs against the United States’ major trade partners. While China has been singled out as the biggest target and has responded in kind with tit-for-tat tariffs, global tariffs from the US on steel and aluminum imports have also prompted retaliation from the EU, Canada, Mexico and Turkey. Escalating tariffs represent one of the most significant risks facing exporters, with many products expected to be caught up in trade wars between the US, Mexico, Canada, the EU and China. BMI Research expects the WTO to face its biggest challenge since at least the turn of the 21st century.
Caught in the crossfire Given the perishable nature of some exports such as food and beverage products— necessitating the need for goods to be moved quickly through supply chains— this sector is likely to the one of the first to be hit by escalating tariffs. BMI Research suggests that the biggest losers will be global F&B giants based in the US with large international presences, as well as US-China players in the seafood, cereal and beverage industries. More broadly, even exporters not in the direct line of fire may soon become collateral damage. Manufacturers of products not currently hit by tariffs will be hurt by indirect tariffs on commodity inputs like metals and agricultural products. With the trade war showing little signs of abating, companies currently absorbing higher input costs will begin passing higher prices onto consumers over the course of 2019. A prolonged trade war impacting other spending segments could force consumers to cut back their overall expenditure across many categories over the longer term.How to Respond?
It might seem tempting to wave the white flag in the face of such dire straits, but there are still measures exporters can undertake to take cover, ride out the war, and still emerge on top.
Benefiting from the Trade WarsIn fact, some strategically-located companies may stand to benefit from the trade war, especially if you export to the world’s second-largest economy. According to the Silk Initiative, Canadian brands now have an advantage over their American counterparts, but lack on-the-ground experience exporting to China. Brazil stands to gain with soybean exports for example, as they replace the US as China’s preferred trading partner. Traditionally dominant Australian and Argentinian exporters are likely to continue their reign in the Chinese meat market with the dwindling presence of American beef as another example. And even if your company’s geographical base and product range don’t happen to fall into the choice few highlighted above, a more universal solution stands to be any company’s most effective strategic asset.
Diversifying export markets to non-impacted countries may seem obvious, but the “don’t put all your eggs in one basket” adage is a tried and true recipe. There’s no better time to explore new and alternative markets than a trade war. Trade wars may come and go, but a balanced portfolio affords a company perennial safety, flexibility and risk diversification. The less concentrated your supply chain, the less hard-hitting trade disputes will be whenever they arise. The international trade environment may be vulnerable to the unpredictability of geopolitics and economic fluctuations, but your company doesn’t have to be. To win in a global trade war, it’s important to pick your battles—and especially your battlegrounds. Of course, growing your export portfolio will take time. You can start on a strong footing by establishing a network of international distributors in your new target markets. Interested in learning more? Contact us to learn more about how we can help you grow your exports.
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