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What "America First" could mean for your supply chain
The Trump administration is certain that its "America First" foreign policy will help it make good on its campaign promise to "make America great again." What's not clear, however, is how this policy shift could affect American companies' international supply chains, according to a July 2017 report from the consulting and tax services firm PwC. Instead the report—titled "The new U.S. trade policy era: What it could mean for U.S. manufacturers" says—that the U.S. is in "a period of heightened uncertainty around trade."
While the upcoming talks to renegotiate the North American Free Trade Agreement (NAFTA) are grabbing all the headlines, there is a larger sense that the administration will be reviewing trade policies with other countries as well. For example, the Department of Commerce plans to issue a report on trade deficits with 12 nations plus the European Union and is putting together an analysis of potential abuses in U.S. trade agreements.
New or tweaked trade agreements could affect such things as customs crossings, data ownership and privacy, securing access to services, and protections for investments and intellectual property, according to the PwC report. In particular, companies should pay attention to any changes made to "rules of origin" or criteria used to establish the national source of a product or part, according to PwC. These come into play when determining whether a product is subject to a tariff. For example, under NAFTA, at least 62.5 percent of the value of autos, light trucks, engines, and transmissions must originate in one of the three NAFTA countries for the tariff on the vehicle to be lifted. If the NAFTA renegotiation results in raised rules-of-origin levels, it could put pressure on auto makers to change where they source parts or components from.
To prepare for any possible changes in the rules of origin, the report recommends conducting a rigorous accounting of the nation of origin and value of all imported content. The report recognizes that this may be complicated. For example, if U.S. steel is exported to Mexico, where it is made into a component for a car, and then imported back into the United States for final manufacturing, how do you account for what part of the value of the component originated in Mexico?
In general, the report also recommends forming a task force to identify possible trade policy changes and anticipate a range of outcomes. The group should also model how different trade policy scenarios, such as a revised NAFTA, could affect your company and how rapidly your supply chain could adapt to such a change. This would involve identifying your biggest exposures by asking questions such as: Do you export into or import from countries with high trade deficits? Could tariffs or other measures be imposed on them?
The team could also look at what options you have for local production or sourcing in the United States and whether a merger or acquisition could help you with U.S.-based product sourcing.
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