Trump and the Supply Chain: Part 5

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Impact of the Trump Administration on Supply Chain Operations

By Stefanos N. Roulakis, Matthew J. Thomas and Patricia M. O’Neill

Editor’s note: To coincide with the inauguration, Supply Chain World is running a series of articles from industry experts about how they expect the policies of the Trump administration to impact the supply chain. Read Part 1,  Part 2,  Part 3 and Part 4.

The election of Donald J. Trump as President of the United States will likely impact policy that affects supply chain operations. The Republican Party’s sweeping electoral victory, maintaining control of both the House of Representatives and the U.S. Senate, means that President Trump will have the opportunity to work with a legislative branch to achieve his policy goals with little need to compromise with Democratic legislators. As the 115th Congress has begun and President Trump begins his administration, preparing supply chain operations for changes coming from the federal government are more important than ever.

Risk Associated with International Trade

To the extent that supply chain operations depend on cross border trade with the United States or the free movement of goods across borders, there exists significant risk to supply chain operations. Throughout the course of the 2016 primary and general election, one constant was President Trump’s denigration of existing trade deals, and U.S. trade deficits with China and other trading partners. Additionally, since his election, the president-elect has frequently made reference to “35 percent tariffs” and other barriers to trade. These indicators send a strong signal that the administration will make efforts to make the import of goods into the United States difficult. Such a stance could lead to retaliatory measures from other countries, which would impact U.S. exporters in addition to importers.

In the opening days of his administration, the new president made clear his intention to press ahead with a trade-focused agenda. On the first day after inauguration weekend he gathered manufacturing CEOs to discuss both stimulating U.S. production and implementing a “border tax” for companies shifting work overseas. With an eye towards a post-Brexit trade relationship he quickly calendared a meeting with U.K. Prime Minister Teresa May and moved ahead with plans to open NAFTA talks with Mexican and Canadian leaders. In his first batch of executive orders, he formally withdrew the United States from a yet-to-be-implemented Trans-Pacific Partnership. Moreover, the White House’s freeze on agency rulemakings blocked trade initiatives completed in the waning hours of the Obama Administration, such as rules allowing importation of Argentine lemons.

President Trump’s cabinet appointees further signal a tough position on free trade and the movement of goods. President Trump appointed Robert Lighthizer to lead the U.S. Trade Representative office. Prior to this position, Lighthizer was a lawyer known for leading roles in key antidumping and countervailing duty trade remedy cases, and his appointment signals the Trump administration’s intention to take a tough stance on trade with China and other countries. Lighthizer, who was a deputy U.S. trade representative during the Reagan administration, will work closely with Commerce Department head Wilbur Ross and Peter Navarro, who leads a new National Trade Council. The three appear to be united in their resolve to chart a more aggressive course on U.S. Trade.

These positions appear to usher in a new era of uncertainty and change for international trade under the next administration. While domestic suppliers may face less competition and receive government incentives to expand U.S. operations and exports, it is possible that the Trump administration’s policies could touch off trade disputes that impact imports of finished goods for consumers or critical components for U.S. manufacturers. More concerning for the global transportation industry, it may signal a long-term shift in demand in the United States, currently the world’s largest importer. For example, even incremental adjustments in the U.S.-China trade relationship can have significant impacts on the outlook for the rapidly consolidating container shipping sector to see supply and demand come back into balance.

Sanctions Risk

President Trump has espoused a harder view on sanctions with Iran and Cuba than President Obama, which raises the risk these sanctions regimes could expand, impacting supply chain operations that involve these countries. Donald Trump’s views on the U.S.’s relations with Iran and Cuba altered throughout the course of the campaign. While President Trump initially signaled mild support for President Obama’s efforts at resetting relations with Iran and Cuba, during the general election the Trump campaign appeared to come closer to the mainstream Republican view of taking hard lines with both countries. Should this trend continue, companies should prepare to “snap back” sanctions management techniques by early 2017.

Conversely, the new administration has been indicating that it will take a softer stance on Russia than the Obama administration did. President Trump has often promoted his relationship with Russian President Vladimir Putin as an asset. However, his party has largely supported sanctions against Russia. Additionally, the fact the ExxonMobil CEO Rex Tillerson, whose company has been involved with the development of Russia’s offshore energy resources, has been appointed secretary of state may signal that the Trump White House will take a softer stand on Russia and loosen trading restrictions. Although Sen. Marco Rubio has reported that he will vote to confirm Tillerson, the senator’s harsh questioning of Tillerson during his confirmation laid bare the divisions in the Republican parties this issue. Further, a bipartisan group of senators reportedly is working on legislation to require congressional approval for relaxation of Russia sanctions.

Conclusion

Companies should evaluate their supply chain operations to optimize opportunities and minimize risk under the Trump administration. Early and frequent engagement with the new administration and Congress is critical to maintaining or gaining competitive advantages in an environment where much stands to change. Companies should additionally continue to monitor changing sanctions regimes to ensure that supply chain operations are able to take advantage of opportunities in emerging markets while managing risk appropriately.

Stefanos Roulakis is an associate in Blank Rome’s Maritime practice group in the firm’s Washington, D.C. office. He counsels clients on a wide range of regulatory matters, including international and domestic environmental standards, cabotage requirements and international trade.

Matthew Thomas is a partner in Blank Rome’s Maritime practice group in the firm’s Washington, D.C. office. He has more than twenty years of experience in international trade, transport and maritime regulation, and government affairs, representing leading energy and commodities companies, shipowners, governments, insurers, investors, ports, shipyards and marine terminal operators.

Patricia O’Neill is an associate in Blank Rome’s Maritime practice group in the firm’s Washington, D.C. office. She counsels individual and corporate clients in the maritime industry on a wide variety of matters, including international and domestic regulatory compliance, corporate, transactional and commercial matters.

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