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The outlook for significant policy changes in tax and many other areas could hinge on the outcome of the upcoming US election, but trade policy is one area where there may be some continuity regardless of the electoral results. Companies should prepare for ongoing US trade policy actions that could affect their global investment decisions.
Business leaders are already sensing this trend and responding accordingly. In a recent PwC survey, a majority of executives said they expect trade restrictions between the US and China will increase regardless of the outcome of the election. That outlook reflects a lack of significant differences in the trade policies of President Trump and approaches being signalled by former Vice President Biden. Trade is shaping up to be a rare bipartisan issue in Washington.
The policy prescriptions flowing from this trend come in two related forms. One is the “stick” approach that employs tariffs to seek to change trading behavior. The other is the “carrot” approach intended to create or enhance incentives for “onshoring” production or supply chains to the United States. For an example of the latter, consider that a Senate amendment to increase federal incentives for US semiconductor companies “to enable advanced research and development, secure the supply chain, and ensure long-term national security and economic competitiveness” won 96 votes in the 100-member Senate in July.
This consensus around onshoring extends to other key industries as well, including pharmaceuticals and medical supplies. And it’s a clear signal that US companies should consider diversifying supply chains and adjusting cross-border deal strategies.
Companies are open to government action to help the US economy, with 81% of executives saying in the survey that there should be a federal strategy to boost domestic production of essential goods. Companies may have differing views, however, about the specific strategy that US officials may pursue to advance that goal. That strategy could include levers such as:
Tariffs that induce US companies to reassess imports and consider sourcing within the country, either through new suppliers or acquisitions;
Tax incentives or tax penalties that encourage companies to invest domestically versus pursuing lower-cost efficiencies in other markets; or
Executive orders that mandate certain products be sourced in the US or specific countries, or that meeting certain standards requires more US investment.
We've already seen an increase in the use of export controls and government oversight of cross-border M&A activity, as well as demands for divestitures or spinoffs that would separate US assets from non-US owners. Many legislators now frame this discussion as a matter of national security, not just economic policy or business investment. The overarching political currents supporting this activity are likely to continue on a bipartisan basis, regardless of who wins the White House and controls each house of Congress.
Thoroughly review supply chains to identify vulnerabilities and areas to adjust for existing and potential regulations.
Position your company to invest in advanced technologies – for manufacturing, distribution and maintenance – so you have adequate capital to take advantage of any new domestic investment incentives. Such investments can also be instrumental in driving down long-term costs.
Reconfigure cross-border deal strategy – not only M&A but divestitures, joint ventures and alliances – to adapt for greater scrutiny regarding intellectual property and national security. This includes cyber threats, and alternative paths could involve smaller deals and transactions in sectors with less security risk.
Even with the United States-Mexico-Canada Agreement (USMCA) taking effect in July, the US trade situation remains fluid. Relationships with China, the United Kingdom, the European Union and others all continue to evolve. No matter who is the US president in 2021, trade tensions are likely to continue for some time. That’s time you can use to adapt for today’s uncertainty and prepare for potential policy changes tomorrow.