The new US trade policy era: What it could mean for US manufacturers

“America first” trade policy

Clearly, we remain in a period of heightened uncertainty. But, one thing does seem certain. As trade-policy agendas, reviews and expected negotiations begin to yield concrete trade policy outcomes over the next year, those US industries most affected—especially manufacturers of industrial and consumer goods--will likely undergo an accelerated period of reassessment and a potential recalibration of their supply chains. They will also need to reconsider where they produce and sell, and, in some cases, fathom whether business will even be viable under some scenarios.

 

Three key "black-box" uncertainties

We see US enterprises challenged by the following as transformation toward a new trade-policy era looms.

Black box #1 - What’s the imported content of my products?

Why it’s important. As more economies move toward value-added tax and also seek to protect domestic jobs, breaking down exactly what is in the final product has become a big focus for policymakers and enterprises alike. We expect US manufacturers will face increasing pressure to account for where parts originated. Clearly, this could be more challenging for some industries than for others. Take the auto industry, which assembles hundreds of parts, many imported from global suppliers.  Automotive vehicles, parts and engines alone accounted for $200 billion, or 29%, of the $750 billion US trade deficit in goods in 2016.[1]  Raising rules-of-origin levels (in a possible bid to thwart content imported from non-NAFTA nations such as China, Korea, Germany or Vietnam, for example), could complicate how auto-makers have accounted for globally sourced content since NAFTA was put into effect in 1994. 

What manufacturers can do now:

  • Carry out deeper, more transparent accounting of where content is sourced to prepare for a possible change in rules of origin affecting not only NAFTA trading partners but also others, particularly in the Asia-Pacific region.
  • This could require a more rigorous process of cataloguing the origin of all imported content and accurately assigning value to that content.

US manufacturers might also consider preparing scenarios around the prospects of a “Made-in-America” rule of origin (specifying that a percentage of a product must originate in the US to avoid an import duty).

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Black box #2 - Preparing for supply-chain disruption

Why it’s important. Changes to NAFTA, for example, could well usher in a complex disentangling of cross-border supply chains. US manufacturers will need to prepare to reconfigure supply chains.  For example, some may decide to find new suppliers in different jurisdictions—or, shift supplier networks closer to production for a “build where you sell” model. M&A targets and divestitures may also come into play if import or tax conditions alter strategies as well.

What manufacturers can do now:

  • Consider forming task forces around operational supply chains to model how could different trade policy scenarios
  • Run scenario planning on all countries with which US has existing trade agreements or where there may be new ones: what are the best-case/worst-case scenarios?
  • Stress-test your supply-chain through scenario planning and modeling to ensure it can rapidly adapt to—and withstand sudden and trade-policy shifts.
  • Explore options for sourcing the supply chain in the US, and consider scenarios that include exporting products from the US to other countries.
  • Consider plans for merger and acquisition activities and strategic partnerships to facilitate US-based product sourcing in case tax reform makes that type of network change a benefit.
  • Prepare for trade policy that could affect your company’s cross-border data flows and forced data localization.

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Black box #3 - Getting ahead of trade policy: What’s your B (or C) Plan?

Why it’s important. With few specifics thus far, companies are in a wait-and-see mode regarding what they can do before any finalized trade policies are implemented. Manufacturers sourcing from countries with which the US has a significant trade deficit may want to consider alternative suppliers in countries with which the US does not have a deficit. Other considerations stem from the administration’s “Buy America, Hire America” agenda, and whether this may lead to raising NAFTA’s rule of origin percentage. If that were to occur, then US manufacturers would do well to consider sourcing within NAFTA—and possibly concentrate supply chains more heavily in the US.

What manufacturers can do now:

  • Build trade-policy and government affairs teams that focus on and track prospective trade policy changes and anticipate a range of all possible outcomes.
  • Identify your biggest “country exposures” including where your company has a significant amount of export into or import from, which countries with which the US the highest deficits, and which ones could potentially have tariffs or other non-tariff measure imposed.
  • Assess and prepare for how geo-political risk, or strained relations with foreign nations, could impair your ability to do business.
  • Look through the customer’s perspective to find answers to your future.  Trade policies could pressure a business to sell a product at a higher price, or to change to a new product or even to re-invent its business. What would your customer base prefer?

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How PwC can help

PwC's dedicated professionals can help US industrial companies understand important developments and how they can impact their businesses. Learn more about how we can help your sector.

Contact us

Robert McCutcheon
US Industrial Products Industry Leader
Tel: +1 (412) 355 2935
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John Livingstone
US Industrial Products Tax Leader
Tel: +1 (860) 241 7224
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Rajiv Jetli
US Advisory Principal
Tel: +1 (313) 394 3132
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Paul Elie
US Industrial Products Deals leader
Tel: +1 (313) 394 3517
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Robert DeNardo
US Industrial Products Supply Chain Leader
Tel: +1 312 298 4546
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Bill Hull
US Industrial Products Risk Assurance Leader
Tel: +1 (678) 419 1091
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