Since January of 2018, primarily in the spring and summer, much was said and speculated about a potential trade war on the horizon with the onslaught of the Trump Tariffs imposed on many countries that previously had longstanding trading relationships with the US. Countries like China, Canada, Mexico, and those in the European Union have been affected by the tariffs. Experts forecast that an ongoing trade war would have hazardous effects on international economic growth, trade activity, and supply chains; plus, there would be immeasurable confidence lost among corporations and consumers.
There are a few strategies to help businesses who rely on the health and efficiency of global supply chains but avoiding an all-out war would be the preferable option for the most parties. Reuters surveyed over 100 economists about steel and aluminum tariffs, and zero of them said these tariffs would benefit the US economy.
What exactly is a trade war and what are the effects?
Tariffs are taxes imposed on imported goods or services that are meant to encourage consumers and businesses to purchase goods domestically. They are meant to promote the health of businesses within a country. Naturally, companies buy from suppliers from where they can fetch the best prices, even with tariffs, so international trade is regular and frequent. A trade war occurs when one country raises tariffs on another, who in turn retaliates by raising tariffs on the first country.
This can begin in one industry or sector, like steel and aluminum, and then other goods and services get pulled in during the retaliation process. These tariff tactics end up affecting other nations involved in the supply chain who are forced to charge their own tariffs to attempt to compensate for the damage. Trade wars are a part of Protectionism, which is an ideological stance, set of policies, and laws that aim to inhibit or restrict international trade in the hopes of bolstering homegrown business and eliminate foreign competition.
Nations and businesses may try to cope by raising tariffs, duties, and taxes, altering supply chain strategies, and raising prices. Shipping with an Importer of Record that offers tax recovery services can help companies get a refund for indirect taxes incurred in foreign nations but only for certain types of goods and services and only between certain countries. If you’re dealing with the EU, you can get your import VAT refund with their assistance. Consumers lose confidence and investors may move their money away in response.
A trade war can affect the home nation negatively and in ways that are difficult to accurately predict. Businesses will always buy from where they can get the best price for comparable goods and services. Others will keep their supply chains as is but raise prices for consumers, angering the local population. With the prevalence of online shopping and global companies like Amazon and eBay, consumers will buy from wherever they can get the best deals. Lost consumer confidence can also mean purse-tightening and lower household spending.
It’s difficult to predict a rise or change in tariffs, but it’s wise for businesses to have multiple supply chain strategies in places for hypothetical scenarios and emergencies. In the case of tariffs being raised, a Plan B that includes alternative sources and partnerships, and changes in the percentages of materials coming from each country, can be switched to in a crisis, with less of a disruption in the supply chain flow. Getting help from experts to maximize refunds on import taxes, VAT, duty, co-location taxes, etc. will help lower costs, regardless of the current economic climate and trade war scenarios.