As a new administration takes control in the White House, businesses are preparing for possible policy changes. President Trump has suggested that certain tariffs and trade deals may be up for renegotiation and promised a lower corporate tax rate for U.S. businesses.
“While it could be that trade policy will not change dramatically in the short term and any change to existing agreements could take years to come into effect, companies should begin to evaluate scenarios for possible change to their global supply networks, so they are prepared to act swiftly if, and when, policies do change,” said Kamala Raman, principal research analyst at Gartner. “It’s important to recognize that there are approximately 300 active regional trade agreements in place today. Incorporating updates from internal regulatory teams into supply chain scenario planning will become a crucial differentiator for leading companies.”
Ms. Raman said that it will be vital for companies to monitor how the newly established White House National Trade Council begins to shape the nation’s trade priorities and tax policies. Potential changes to the North American Free Trade Agreement (NAFTA) or a move to a border adjustment tax could impact business and financial performance. Global trade compliance (GTC) software can help companies manage and monitor the impact of changes to regional trade agreements by reporting the total duty savings currently claimed. More importantly, the software can run scenarios to calculate the impact of new duties and taxes on various sourcing decisions.
Although it is still early to identify the scope of potential changes that could impact sourcing strategies, brand owners should be actively focusing on risk assessment actively communicating with suppliers.
While many companies outsource key aspects of global trade management (GTM) they could find themselves unable to conduct this kind of analysis. Gartner recommends that, even when processes are outsourced, companies retain the in-house knowledge needed to make such calculations.
Additionally, companies should consider the feasibility of making sourcing changes quickly. This will differ from industry to industry, and any changes to the corporate tax policy to encourage domestic manufacturing will require alternate sourcing arrangements to be evaluated before any decisions can be implemented.
“Although it is still early to identify the scope of potential changes that could impact sourcing strategies, brand owners should be actively focusing on risk assessment actively communicating with suppliers,” said Ms. Raman.
While exporters with significant domestic manufacturing stand to benefit from policies that enable value added tax refunds on their exports, unwinding even portions of the intertwined supply chains of the US, Canada and Mexico with trade flows in excess of $1 trillion in 2016 will be a high stakes challenge across a number of industries.