Beyond tariffs, to read the other chapters in this publication, click here.
Companies can be challenged by a wide range of trade-related developments, falling broadly into two camps: tariffs and duties, and non-tariff barriers. KPMG has identified more than 50 such trade levers overall. Those in the tariffs and duties category include:
- Tariffs themselves, including new tariffs and increases in existing tariffs, typically targeting specific countries and/or products.
- Anti-dumping and countervailing duties on specific products, countries and manufacturing entities.
- Withdrawal of countries from established customs unions (e.g. Brexit).
- Cancelation of, or withdrawal from, multilateral trade agreements, as in the US's recent attempts to renegotiate the North American Free Trade Agreement (NAFTA) and its decision to pull out of the Trans-Pacific Partnership (TPP) before it could take effect.
- New multilateral free-trade agreements that may or may not include the participation of a company's home country. Example: The Regional Comprehensive Economic Partnership, or RCEP, which is a proposed free trade agreement between the 10 member states of the Association of Southeast Asian Nations and the six Asia-Pacific countries with which ASEAN already has free trade agreements (Australia, China, India, Japan, South Korea and New Zealand).
- The renegotiation of bilateral trade agreements. Even when such agreements have been in force for long periods of time, shifting political developments can jeopardize their sustainability.
Non-tariff barriers can include:
- Protectionist policies, including import quotas, local content requirements and public procurement practices that help domestic companies at the expense of foreign competitors.
- Assistance policies, which help domestic companies, but typically not at the direct expense of foreign competitors. These can include domestic subsidies and industry bailouts.
- Domestic standards policies aimed at protecting the health and safety of people and the environment. These can include licensing, packaging and labeling requirements; sanitary and phytosanitary rules; and food, plant and animal inspections.
- Embargos and sanctions that can restrict business dealings. These may be specific to countries, industries, companies or even individuals, or to a specific issue or cause (e.g. the use of North Korean labor).
- Limitations on access to investments and technology. These limitations can include restrictions on types of technology that can be transferred, used or even accessed by certain countries or individuals, and the blocking of investments and acquisitions deemed a national security threat. In the US, the Committee on Foreign Investment (CFIUS) is authorized to review certain transactions involving foreign investment in the US to determine their effect on national security. In early 2018, CFIUS did not allow the US$1.2 billion sale of MoneyGram, a money transfer company, to China's Ant Financial, citing national security concerns.
- Third country/party trade pressure. This might involve a country or group of countries seeking limits on trading partners' interaction with a third party. By way of example, the yet-to-be-ratified United States-Mexico-Canada Agreement, which was drafted to replace NAFTA, requires Mexico and Canada to consult with the US before entering into free trade agreements with certain countries, including China.
When any of these developments surface, companies need to be able to quickly determine what the qualitative and quantitative impacts will be on their businesses, and identify the levers available to address them. They need the flexibility in their modeling tools to do this again and again as each scenario changes in this ever-changing environment. They also need to begin calculating what the cost of insulating their value chain from such geopolitical risks might be. KPMG has calculated that companies can reduce their tariff burden by about 25 to 50 percent, on average, using a variety of strategies pioneered by companies that have operated in historically high-tariff industries.1 Back to main page>>