All signs point to free trade going the same way as typewriters and payphones. What have long been pillars of economic freedom and free market capitalism have been undermined by protectionism, populism and isolationism. neo-mercantilism This month's flavor.
Tariff increases continue despite the fact that for the past 20 years, nearly 90% of economists support eliminating tariffs and two-thirds of Americans believe that tariffs lead to higher prices. Exporters, importers, producers, and consumers are all adversely affected by tariffs.
But is there a silver lining to this cloud? The answer is a resounding yes.
The problem with trade policy (and really all economic policy) is that it is devised, planned, and executed by economists, lawyers, and bureaucrats far removed from the actual world of commerce. As a result, we are all too often unaware of the impact that trade policy has on producers and consumers.
The silver lining of higher tariffs is that they force companies to evaluate (and re-evaluate) their efficiency and productivity. Raising tariffs would, so to speak, put foot in the fire. Exporting countries like the UK with strong currencies will be hit by higher tariffs, while exporters will have to price their goods to make them more affordable for importers (reducing sales margins). are facing challenges. Currency devaluation is not the answer, especially if exporters need to source raw materials and components from high-currency (and therefore more expensive) suppliers.
To respond effectively to tariff increases, importing companies need to be aware that they have four options: They can pass on tariff increases to customers, absorb tariffs (resulting in lower profits), renegotiate contracts with suppliers, or switch suppliers.
Companies should conduct internal audits of their operations to assess efficiency, effectiveness, productivity, competitiveness, and sustainability. Well-led and well-managed companies want to do this regularly anyway. Such a “health check” includes all departments of a company's operations, including finance and accounting, sales and marketing, human resources, production, IT, and customer service.
Once the inspection is complete and the necessary improvements have been made, what are the most important changes the company can make regarding the tariff increases it faces?
Companies need to take a close look at the free trade agreements that countries have with trading partners and determine what advantages they have over competitors that are not members of free trade agreements. There is.
When it comes to unfair trade practices of foreign exporters, companies need to clearly understand Section 301 of the Trade Act of 1974 when trading with China. The article provides legal means for the United States to impose trade sanctions on foreign countries, including: Violate trade agreements or engage in conduct that is “unfair” or “unreasonable” and burdens U.S. commerce.
The poster child for unfair trade practices is, of course, China. Over the past three decades, China has squeezed out manufacturing in the Americas and eroded the region's U.S. market.
Another important means of mitigating the immediate impact of tariffs is foreign trade zones. Foreign goods that are “parked” in the area are not subject to customs duty until they leave the area. (Think of glass Christmas ornaments from Poland, which arrive in the U.S. in August and only pay duty when they leave in November.)
According to Gary Goldfarb, chief strategy officer at third-party logistics company Interport, said: Our FTZ facilities allow businesses to defer duties on imported goods until they leave the zone, avoid duties on re-exported items, and eliminate duties on scrapped or destroyed items. These cost-saving measures can help keep your supply chain competitive as trade policies evolve. ”
A somewhat related mechanism is 'duty reduction', where 99% of the duty is refunded to the importer if the product is re-exported. Yet another method is “tariff engineering.” This allows customs brokers and trade lawyers to find ways to lower tariff rates by reclassifying products. Of course, sourcing elsewhere, or diversifying your supply chain, not only lowers import costs, but also diversifies risk by adding another source of product imports. Importing parts for final assembly rather than finished products can also reduce costs to reduce or eliminate customs duties.
And let's not forget the role of technology. Import/export software is a boon for international trade as it streamlines logistics and compliance processes. This software can be used for centralized data management, automated workflows, and trade finance management. Thomson Reuters' Onesource Global Trade and Descartes Datamyne are just two of the leading companies that efficiently facilitate cross-border commerce.
The era of Reagan-Thatcher is over. Tariffs and tariff increases exist today and will continue for the foreseeable future. Companies involved in cross-border commerce will need to adapt to this reality, and in doing so may actually find a silver lining in the cloud of neo-mercantilism.
Jerry Haar is a professor of international business at Florida International University. He is also a fellow at the Woodrow Wilson International Center for Scholars and the Council on Competitiveness in Washington, DC.
