Oh Magic 8 Ball: What Will the New Trade Policies Be?

Welcome, 2017! Hope you returned from the holidays, renewed and refreshed. Peace to all, and best wishes for a successful New Year!

This past week, I’ve been catching up on the news. Each day started with a diet Pepsi and the Wall Street Journal, The Sourcing Journal, and many others.

No matter what I read, everyone’s speculating about new trade policies. So to plan ahead, I consulted my ‘Magic 8 Ball’. I asked: “Will Mr. Trump Make Big Changes to US Trade Policies? 

For the answer, take your pick:

1- Most Likely

2- Very Doubtful

3- Ask Again

4- As I See It, Yes

5- My Sources Say No

6- Cannot Predict Now

7- Yes

8- Don’t Count On It

9- Without a Doubt

0- Better Not Tell You

In all seriousness, our long term sourcing strategy remains unclear … for now. Problem is, business isn’t suspended in times of uncertainty. We don’t have luxury of sitting around doing nothing until the new trade policies are clarified in a tweet on Jan 21!

Here’s what we DO know: The status quo is changing, and we can take steps to get prepared, no matter what Mr. Trump’s specific policies turn out to be.

Let’s look at what we can do now, no matter what happens in the year ahead.

New trade deals: Get prepared

We can’t possibly know the details yet, but let’s expect hawkish trade deals. Whether achieved by new tariffs, a border adjustment tax or some other means, a new trade policy will open up new sourcing options.

Whatever PE Trump’s new trade advisers -- Mr. Ross, Mr. Navarro and Mr. Lighthizer -- come up with, the early signs are that China is in their sights. The price advantage we’ve all become used to may not hold long term, and there will likely be many new possibilities to consider.

How to prepare for the unknown? Position for change. Pick your poison …

USA pulling out of the TPP: This is "old" news, topping the Trump ‘to-do’ list after the inauguration. Especially for fashion-related businesses, if you counted on duty free goods manufactured in Vietnam (or elsewhere) in your 2017 gross margins, better double check the margin forecast!

Of course, if being less dependent on China was your sourcing strategy, many of the reasons are still valid. Geographical diversification strengthens the supply base and can still offer a labor cost advantage. In any case, it’s a good time to make sure you and your CFO review the margin forecast, and are on the same page. 

New Tariffs, Border adjustment tax … or ?  The Trump Administration campaigned on a promise to redo the USA’s “dumb” trade deals. Recent cabinet appointments and the creation of a “National Trade Council” are the first step.

Both importers and exporters can plan ahead ...

Exporters:  As they say in physics, every action creates an opposite and equal reaction. So, expect a reaction abroad, to any new protectionist policies at home. Review your sales forecast and production needs for the second half, to take into account retaliatory measures.

Importers: You may have to raise prices to offset a higher cost structure. If so, will there be a drop in the demand of your product? Take a fresh look at pricing. Flex your sales forecast, so you don’t get stuck with inventory. And, can you adjust the supply chain, to take greater advantage of the strong US Dollar? There are many options. As they say, it’s complicated …

Do Now: Take proactive steps to protect gross margins and the bottom line, by rethinking sourcing, and by value engineering the product. (more below).

P.S. Do you have a value engineering strategy?

We must be prepared for higher prices or lower margins. And that isn’t a forecast anyone wants to build.

So, what can you do to protect margins? We should always be actively value engineering our products for cost management. But, it’s an even greater business imperative now.

Some questions to consider:

• Do you have the right organization and leadership in place to support your value engineering strategy and make recommendations?
• Who is leading this profit improvement effort? How can you break down obstacles this team may face within your organization?
• Does it require renewed focus? Are you really doing this aggressively enough?

Bottom Line: You Don’t Have to Know The New Trade Policies, To Begin to Plan For Them

They’ll be plenty of uncertainty to deal with, in the first half of the year. But there are strategies we can put in place now, regardless of the trade policy details.

Gross margin improvements? Closer collaboration between forecasting and sales? Accelerate innovation? Always the right time for these initiatives.

Just focus your efforts in an area that will move the needle forward, while we wait to see what the future holds.

As always, please share your thoughts below:  How are you dealing with 2017’s trade uncertainties?