The Road Ahead Under Trump: How Should Businesses Prepare?
One hundred days into the Trump Administration, American businesses should not be concerned with what President Trump promised and what he has accomplished. Rather, businesses should be preparing for the future. Let’s take a minute to perform our own kind of “state of trade SWOT analysis” so we can determine the types of questions business leaders should be asking themselves.
For starters President Trump has followed the lead of previous administrations on some policy issues. One practical business note is that the Trump administration has implemented some regulatory changes to continue his predecessors’ decade-long efforts to streamline regulatory requirements for exporters and importers. This project will modernize and streamline procedures and paperwork that must be filed with government agencies and eliminate redundant requirements for exporters and importers. His willingness to stay the course on this practical initiative, as well as on more controversial issues like relations with Cuba, Iran, and China, suggests that President Trump may develop into a more cautious chief executive than the unpredictable candidate he was in 2016. This is good news for the trade community, which often suffers when uncertainty is the norm.
However, the Trump administration is falling behind in moving overall trade policy forward. To date, many senior policy positions are unfilled and Robert Lighthizer has yet to be confirmed as US Trade Representative (USTR). Meanwhile, Commerce Secretary Wilbur Ross and White House advisors have been busy on trade issues despite losing many seasoned negotiators and policy makers from government. You will also remember that President Trump terminated all politically appointed ambassadors when he was sworn into office. Of the 188 open ambassador positions around the world, the administration has only nominated six people to these jobs.
While the Trump administration did take the United States out of the 12 nation Trans-Pacific Partnership (TPP), which the USTR spent the last ten years negotiating, it has not taken any measurable steps to renegotiate the North American Free Trade Agreement (NAFTA). To actually make changes to NAFTA, the administration must formally notify Congress 90 days before it begins new negotiations. Furthermore, the administration must provide specific details regarding all proposed changes. Such a detailed NAFTA review is likely not ready since the administration does not have a USTR in place. With that being said, it is important to note that recent action on Canadian softwood lumber and dairy products are unrelated to NAFTA, as those issues were specifically excluded from the original agreement.
President Trump has indicated that he wants to address trade issues on a bilateral or trilateral basis. Our assumption is that he believes he can get a better deal for American companies with such negotiations. However, here are a few things that will complicate the issue. When the USTR negotiated the TPP, it could use the multilateral nature of the agreement to better leverage a deal. For example, if a country wants a concession for agreeing to a particular US provision, our government could secure that concession from another country involved in the agreement. Such action allows the US to satisfy demands while giving up nothing, a type of negotiation tactic that is not possible in bilateral or trilateral negotiations.
Meanwhile, the Commerce Department recently determined that new countervailing duties on Canadian softwood lumber are warranted because of Canadian government subsidies. The new duties, while fitting with the administration’s promise to enforce our trade laws, were planned long before President Trump took office. As the administration looks for opportunities to strengthen and enforce trade law, the decision would seem to be in the best interest of the US In fact, US parties negatively affected by Canadian government subsidies will be recompensed by the new duties our government collects from Canada. While this sounds like tough enforcement action by the administration, ultimately it won’t be the Canadians who pay duties. As is the case with similar trade issues, softwood lumber duties will ultimately be passed on to US importers of Canadian lumber and downstream to home builders and home buyers. If the administration does move forward and renegotiate NAFTA, perhaps it would be better to add softwood lumber, dairy and other omitted topics into the agreement for predictability for businesses going forward.
So how can companies doing business in the US move forward without a clear vision of the next few years of US trade policy? By staying the course, being prepared but knowing your options and constantly self-assessing.
Consider where your products and component parts come from. What if duties increase for those items? Can you buy them in the US? Do you have other sources? How quickly can you get what you need and how much inventory do you keep?
Are you foreign-owned? Consider your product’s country of origin. Is it substantially transformed in the US? Where is the technology and engineering coming from? Could you manufacture in the US and take advantage of Trump’s potential tax plan if it comes to fruition? Are you going to need foreign workers? How are you going to get them if immigration rules change?
Do you export? Ensure you are screening your customers and complying with the Treasury Department’s sanctions requirements. The administration promises more enforcement regarding US and foreign parties violating US export and Office of Foreign Assets Control’s sanction requirements. Understand US jurisdiction over your products and services, including the potential for US control over the exports of any foreign subsidiaries.
The new administration promises an uptick in other types of trade enforcement, and it might surprise some to learn that the US has jurisdiction over products and technology with US content all over the world. The Commerce Department controls and licenses the shipments of US commercial products globally and the State Department governs not only US military goods and technology but also the actions of US entities providing defense services and facilitating the manufacture, sale and export of foreign defense products worldwide. So be sure you know the rules that apply to you.
Doreen Edelman is a trade attorney and co-leader of the global business team at Baker Donelson. She has more than 25 years of experience advising companies on import and export compliance, foreign investment and global expansion. She can be reached at 202.508.3460 or by email at email@example.com.