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Trump's proposed trade policy shifts could affect sectors such as consumer products, technology, industrials, agriculture, and life sciences. Companies have already been adapting their strategies, operating models, and supply chains in response to disruptive forces like COVID-19, military conflicts, and other geopolitical and macro-economic factors. The new administration's policies will require further examination of these strategies to ensure efficiency and resiliency.
Trump's trade policy tools include tariff authority (e.g., Section 301), executive orders, sanctions and embargoes (e.g., International Emergency Economic Powers Act), trade agreement negotiations, trade promotion authority, and trade enforcement. Some actions can be taken immediately, while others will require congressional involvement.
Companies are considering several immediate actions to prepare for potential tariffs and trade policies:
- Increasing inventory: Companies may increase inventory levels to avoid the immediate impact of tariffs, though this could lead to higher holding and logistics costs.
- Relocating production: Some companies are considering moving manufacturing operations to countries less likely to be affected by tariffs, though this can be costly and disruptive.
- Passing costs to consumers: Companies may raise prices to offset tariff costs, though this could affect competitiveness.
- Customs valuation planning: Reducing customs value can lower duties owed, but requires careful planning and collaboration.
- Lobbying and advocacy: Companies may engage in lobbying efforts to influence trade policy decisions and seek exemptions or reductions in tariffs.
Long-term strategies include exploring new markets, forming strategic partnerships, and preparing for potential export controls and sanctions. Companies should also consider how other countries might retaliate against U.S. trade policies.
To prepare, companies should:
- Follow trade policy developments closely.
- Understand their financial and physical flows and current operating model design.
- Assess procurement and production alternatives.
- Evaluate potential costs and develop a comprehensive assessment and contingency plan.
- Assemble a cross-functional working group to analyze risks and opportunities.
- Develop short-term, medium-term, and long-term mitigation steps and a change management plan.
- Socialize the plan with senior leadership for buy-in.