After decades of stability and certainty in the global trade environment, all bets are off as the world's economic powers struggle for dominance and deploy tariffs in what may devolve over time into a full-blown trade war.
Managing abrupt new trade costs is top of mind for the leadership of many global companies. Reducing these expenses in the short term is critical. And with turbulent trade conditions expected to continue for an unknown length of time, companies also need to plot their strategy to compete and stay profitable for the long term.
This report begins with insights from the geopolitical risk analysis and consulting firm Eurasia Group, who explain the sources of this current disruption, how trade conditions are being affected, and where this all might lead us in the future. We then offer some leading practices for company leaders to consider for both the near and longer terms.
An extended period of calm in the global trade environment is being swept away as protectionism spreads, tariffs climb, trade barriers rise and multilateral global institutions lose influence. It now seems likely that international companies will see heightened uncertainty over trade -- and higher costs -- for years to come.
The shift might seem abrupt, and many may attribute it to the trade policies of the current US administration. But changing attitudes toward trade, and globalization more broadly, have been building beneath the surface globally for almost 2 decades.
Most of today's business leaders grew up with stable trade conditions and well-defined rules, and they arranged their capital investments, sources of supply and supply chain networks accordingly. But with today's unprecedented geopolitical disruption resulting in new trade and non-trade barriers and a changing web of regional and bilateral trade agreements, multinational organizations need to consider both the immediate and longer term implications to their businesses.
The outlook for global trade is expected to stay uncertain for many years to come. No one can say how long for sure, but the current tensions are likely to outlast the current US administration and could go on as long as 20 years, according to Jack Ma, the chair of Alibaba Group, the China-based international tech company.1
However, forward-thinking companies can turn disruption into opportunity. By investing in a flexible supply chain strategy, strong global trade management infrastructure and by basing their strategies on robust scenario planning, companies can gain an edge over their competitors and be in a much stronger position than they are now, no matter what the future holds.
1 “Jack Ma warns Alibaba, China to Prepare for 20-Year trade war,” Bloomberg, 18 September 2018
The views of Eurasia Group do not necessarily represent the views of KPMG International or its member firms.