Trade policies that can shape the consumer products industry Bookmark has been added
Trade policies that can shape the consumer products industry
How your organization can prepare and adapt for new changes
The consumer products industry can—and should—be taking steps to prepare for potential changes to US trade policy, most notably the North American Free Trade Agreement (NAFTA), the United States-Mexico-Canada Agreement (USMCA), and the US-China Trade Agreement.
- The US—A global leader in imports and exports
- Benefits and downsides of trade agreements
- US-China trade agreement
- Adapting to changing trade policies
The United States—A global leader in imports and exports
Through a complex network of trade agreements with a wide range of countries across the globe, the United States is a global leader in imports and exports. To help ensure a free, fair, and orderly execution of trade deals, the United States has enacted many trade agreements, including the more recent USMCA and the proposed bilateral trade agreement with China. USMCA has been agreed upon by the US, Canada, and Mexico as a replacement for NAFTA, but the agreement must be approved by the legislatures in each of these countries.
There’s much discussion on potential modifications to US trade policies. Consumer products (CP) companies that rely on trade to produce and market their products may be impacted by these potential changes. To strategize for the uncertainties ahead, it’s important for the CP companies to understand the pros and cons of their particular circumstances with regards to the significant agreements the United States has entered. Outlined in the discussion that follows are high-level details on NAFTA, USMCA, and the US-China Trade Agreement.
To better prepare for potential changing trade policies, CP companies would likely benefit from developing a number of interdependent strategies such as:
- Staying nimble through scenario planning by developing processes to be able to quickly respond to changes in trade agreements. This can be accomplished by deploying special teams to continuously monitor shifts in tariffs, identifying alternative sources for raw materials and alternative markets for US exports, as well as working toward developing more competitive labor costs.
- Investing in automation to better manage US production and labor costs.
- Investing in STEM talent to facilitate automation and smart manufacturing.
- Optimizing supply chain by continuously scouting for more cost-effective and reliable alternatives to their existing supply chain.
- Investing in innovation to help reduce US dependence on trade and foreign-made products.
Fundamentals of trade agreements
To help ensure most favored nation trading status, the United States has a range of trade agreements in place. Trade agreements help ensure that nations have access to each other’s markets with an objective of increasing trade and economic growth of the participating nations. A typical trade agreement consists of five thematic areas that include:
- Eliminating tariffs and trade taxes
- Refraining from unloading cheap products
- Refraining from using unfair subsidies
- Standardizing and implementing trade policies, labor standards, and environmental protections
- Adhering to patents, copyrights, and intellectual property rights
New or proposed tariffs between the United States and China
- New or proposed tariffs between the US and China
- In February 2018, the US administration-imposed tariffs and quotas on imported solar panels and washing machines.35
- A month later (March 2018), a 25 percent tariff on steel imports and 10 percent tariff on aluminum imports were imposed on China, whose economy depends heavily on steel exports.36
- In response, China imposed tariffs worth $3 billion on US fruits, nuts, pork, and wine.37
- The United States followed up by identifying about 1,300 Chinese exports across industrial technology, robotics, aerospace, transport, and medical products that could face additional tariffs amounting to $50 billion.38
- China quickly responded with tariffs on more than 100 US products, including soybeans, cars, and whiskey that could amount to $50 billion annually, although the timeline for implementation of the tariffs hasn’t been provided.39
- So far, the United States has imposed tariffs on China to the extent of more than $250 billion.40 Further, the United States has laid out tariffs worth $267 billion that it could impose on China. China has imposed tariffs on US to the extent of $110 billion. Both countries have backed off from imposing additional tariffs and are exploring measures to de-escalate the trade-war-like situation between the two countries. They are now exploring a trade deal and have agreed to establish enforcement offices that would oversee its implementation.41
How can the consumer products industry prepare and adapt to changing trade policies?
Many CP companies are currently operating under considerable levels of uncertainty as the national conversation focuses on the implications of USMCA and the likely time line of its implementation. In the short term, NAFTA remains in place and CP companies will need to plan their strategies around this fact. However, in the medium to long term, CP companies would likely benefit by focusing on a complex set of interdependent strategies, which can include:
If changes in trade policies occur, being proactive and agile are keys to competitive success in this dynamic situation. Taking this approach will likely benefit CP organizations and their global trade departments who are tasked with the dual roles of carrying out strategic trade and duty planning as well as overseeing the day-to-day regulatory compliance issues associated with importing and exporting goods through automation, robotics, and strong processes.
The good news is that with advancements in supply chain management and data analytics, there’s a proliferation of insights to optimize planning and management around trade issues, helping CP companies manage through this period of transition.