Businesses have a window of opportunity to make preparations for a more protectionist future. It will not be open forever.
John Major’s intervention aside, a hard Brexit remains the government’s position on the EU, and industries are starting to take note. Today, The Times reports UK car manufacturers are looking to source more parts domestically in response to the threat of tariffs when the UK leaves. Over time, the current ratio of two thirds sourced internationally to one third at home may be reversed.
The concerns are not restricted to the UK, nor worries over Brexit. Going local was a key message at this year’s Davos meeting of the World Economic Forum, as businesses try to pre-empt a Trump-led populist backlash against globalisation.
America first: bringing production home
Furthermore, while they’re particularly exposed, it’s not just car makers in the firing line. According to the new head of the President’s National Trade Council, repatriating international supply chains is a priority for the new administration.
“It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” Peter Navarro told the Financial Times
“We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”
In the UK, meanwhile, the Road Haulage Association has warned of fresh food rotting as Brexit “cripples” supply chains – tariffs or no tariffs – if the right customs controls aren’t in place.
Time to future proof the supply chain
We’ve noted before that predictions about the impact of Brexit are particularly unreliable. Confirmation the UK will exit the single market and full membership of customs union have given us some indication of what to expect from Brexit. Until negotiations get well underway, however, and even then, there will continue to be massive uncertainty as to the final trading relationship, tariffs and customs arrangements in place.
The same is true to an extent in the US. Despite the frantic activity of the Trump administration, it will be some time yet before it becomes clear to what extent Trump wants – and can – pursue an isolationist trade policy.
These are not reasons to wait, though. Rather, they give time to act – and it may end up being a narrow window of opportunity. The speed and size of currency movements since the Brexit vote has already shown how quickly things can move. Likewise, in the US, should some of the more worrying potential consequences of the new administration’s policies and rhetoric materialise, they could do so quickly.
If organisations don’t yet have the confidence to anticipate the future trading landscape, they do at least have sufficient warning that changes are on the way. They need to be building resilience in their supply chain now – ensuring they have the visibility and flexibility to react when the time does come.