As we watch major changes happen to the executive and legislative branches at our nation’s capital, many companies that do business globally are wondering what it means for them. How may global trade policy change, and how will their export markets be affected? Will there be major changes to trade agreements that cause disruptions to global supply chains? Will the current tariff wars go away? Here’s some insight into these important questions.
The Biden administration’s impact on global trade policy
Although there are significant differences in trade policy between the current and former administrations, do not expect an immediate shift in global trade policy. While U.S. trade policy can change with the swipe of a presidential pen, the actual fabric of global trade is a big ship that is not so easy to turn.
Furthermore, the COVID-19 pandemic has played a major role in the disruption of international trade, so until the pandemic is managed and under control, there will be continued disruptions in workforces, production, and logistics. The good news is, we have had nearly a year to address pandemic-related shortfalls in supply chains and have made considerable progress in finding alternative solutions and sources.
The Biden administration’s impact on multilateral trade agreements
Perhaps the most noticeable change with the Biden administration will be the likely return to multilateral trade agreements. Rather than negotiating bi-lateral agreements between different nations, the United States will likely see a return to regional and strategic alliances in trade, including potentially reentering negotiations with the European Union (EU) and reentering the Trans-Pacific Partnership.
These agreements would support an administration-wide approach to tying trade to broader foreign policy goals, rather than continue with an inconsistent, case-by-case approach. Ultimately, this policy reversal will lend more stability and predictability to businesses that rely on consistency while sourcing from abroad.
Another trade agreement-related issue to watch will be whether Congress renews the Trade Promotion Authority (TPA), which is legislation that allows the executive branch to fast-track trade negotiation powers. Without TPA renewal, future or revised agreements could cause significant delays to trade, as they would require approval through normal congressional procedures.
The Biden administration’s impact on the U.S.-China trade war
I expect the new Biden administration to continue to have a firm stance against what the U.S. sees as unfair trade practices by China. Tariffs will likely loosen between the two nations, and rhetoric will also likely soften, but the current administration will most likely keep some tariffs in place as leverage for negotiating.
Additionally, there are signs we will see tariff reductions or eliminations with our traditional strategic alliances, including Canada and the EU, as well the development of a collaborative strategy with those partners to address trade issues with China.
While it may be too soon to tell exactly how the new administration and Congress will impact companies doing business abroad, these are probable speculations based on what we know about their stance on global trade policies. Leave us a comment below with your thoughts!
How can businesses prepare?
While it may be too soon to tell exactly how the new administration and Congress will impact companies doing business abroad, there are several steps international businesses can take to mitigate the risks present in these uncertain times of pandemic and a changing administration.
For starters, consider diversifying supply chain sources, especially if they are over reliant on China or any one country or region. Also consider alternatives to just-in-time inventory practices. In times of pandemic and trade wars, it might be a good thing to have excess inventory on the books, so that production and revenue streams are not brought to a screeching halt. On the export side, consider diversifying your target markets, which helps even out sales revenue if a particular market or region is subject to tariffs or political instability.