The topic of preparing for exporting takes on a lot of different meanings when you consider world events. Some immediately associate prepping with doomsday, or a zombie apocalypse. So, what do inflation, Bird Flu, extreme weather, Israel, Ukraine and Russia, and cyber attacks all have to do with international trade? In short, a lot!
Let’s take a look:
Inflation – It would almost seem elementary, but on the demand side, higher inflation in a country can make its exports more expensive for foreign buyers, reducing demand for your products and thus negatively impacting your export revenues. On the import side, higher inflation can lead to higher import costs for your domestic consumers.
On the supply side, higher inflation can lead to increased production costs for domestic industries as raw materials and labor. Other inputs become more expensive, thus reducing your competitiveness in export markets.
Bird Flu – Aside from the effects of an embargo that other countries may enact against U.S. exports of affected products, other countries could restrict travel of foreign citizens who may have traveled to affected areas like farms or affected states. Countries like the U.S. and Australia already have restrictions in place: for example, the USDA’s Animal and Plant Health Inspection Service which promotes agricultural health, regulates genetically engineered organisms, and manages wildlife damage.
Extreme Weather – This is an annual concern worldwide and has everything to do with supply chain interruption. Consider how a typhoon can likely devastate a costal port in many countries. The damage to infrastructure of the port may pale in comparison to the storm damage your foreign supplier may suffer. Although the event is temporary in nature, the ripple effect can last months to years!
War – This is a touchy subject because many industries benefit from war, and many do not. One thing for certain is that supply chain disruptions accompany war. The implications of war on export compliance by way of diversion and evasion of sanctions comes to mind. While we are not officially at war with China, computer storage company Seagate Technology LLC comes to mind for violating U.S. export regulations for their trade with blacklisted Huawei. Just this past April, Seagate was fined $300 million.
The U.S. and many other countries use sanctions to penalize offending countries or entities such as the U.S. embargo against Syria, Cuba, North Korea, and Iran. It may be easy for a company to abide by the sanctions and refuse shipments to these countries, but how about the embargo placed against the Luhansk, Donetsk, and Crimean regions of the Ukraine? What if China attacks Taiwan and the U.S. retaliates by placing a trade embargo? Catastrophic doesn’t even begin to explain the disruption to the supply chain.
Recent Events:
I want to bring a little light to some recent news about BRICS, a new currency being developed by Brazil, Russia, India, China, and South Africa. You may remember not so long ago the world experienced its newest currency: the euro.
The issue of developing this new currency with the potential to rival the U.S. dollar as the global reserve standard is troubling. The euro was not intended to be a rival and European countries weren’t considered rogue nations or nations increasingly unfriendly with U.S. policy.
Growing pressure for a new global currency comes after continued weaponization of the U.S. dollar in the form of sanctions and trade wars. Many countries are seeking greater independence from the U.S. financial system.
So, how does this affect U.S. trade?
The immediate impact on U.S. trade in the short term remains uncertain. There could be some disruption; however, businesses and countries alike are nimble and would likely adjust to a new currency for transactions. Currently, 90+% of all global transactions take place with U.S. dollars. A BRICS currency faces some uncertainty. The BRICS economies, while large, are still developing compared to the U.S. and the currency may seem unstable especially internal to BRICS countries who have different economic priorities and political systems. The U.S. dollar remains the world’s primary reserve currency, used for oil trading and international debt. This entrenched position won’t be easily replaced.
The underlaying message here is to be prepared. Risk management is a topic I frequently write about. Anticipate issues before they become your issue.
As always, the SBDC and the Go Global Initiative are here to assist in developing your international markets. Our services remain free and confidential. How can we assist you today?
