Trade in 2020
Global risks and opportunities
David Iwinski Jr.
Looking Ahead: Trade in 2020
Global risks and opportunities
How will the events of 2019 shape the coming year? We can’t know for sure – no one could have predicted 2019’s upsets a year ago. But, on a global scale, we can observe some areas of risk and opportunity. Below are my contenders for the top 4 trade risks to consider in 2020:
In 2019, the U.S., Canada, and Mexico completed negotiations for the replacement for NAFTA known as USMCA. Combined U.S. trade with Mexico and Canada is nearly double the dollar value of trade with China. This new accord, governing this massive amount of trade, impacts automotive supply chains, labor laws, IP, and other areas of trade. In parallel with the negotiations, violence in Mexico has reached new heights, with the government often losing or backing down from battles with the drug cartels. While the new trade agreement should bring stability, corruption and violence may push Mexico in the opposite direction. Adding to this uncertainty will be issues related to immigration and border security, where our current truce could be temporary. These items imply a year of change and uncertainty ahead. If your supply chains include Mexico, evaluate your risk and develop mitigating strategies ahead of time.
Taiwan, Japan, South Korea, and China are all among the U.S.’s top 15 trade partners. Though we have made recent progress, this masks an underlying risk that has not been entirely resolved with a few transactional agreements on farm products. At this point, it is unclear whether the current U.S. administration will push toward a new and expanded trade deal or a decoupling of the world’s two largest economies. The U.S. administration is pushing for vigorous enforcement protocols as part of any long-term agreement, implying that even with a trade deal the uncertainty will not go away. Do not count on a smooth resolution in 2020 or a return to China's previous trade practices.
The implications of Brexit reach far beyond the UK. The EU and Switzerland comprise 7 of the U.S.’s top 15 trade partners. Whether the U.S. and UK will sign a major trade deal is only one of the questions for which we do not yet have answers. The UK’s exit from the EU is likely to spark great change for the remaining EU member nations as well. While much has been written regarding the impact of Brexit on the UK, the continent could potentially lose easy access to the capital markets of London, putting a brake on international investment. The exit of the UK also implies an EU further dominated by Germany and France. What this will imply for others within the union is unknown, but resentment is likely to grow. Brexit will impact business relationships, not only within the UK, but among the EU as a whole.
The United States
Regardless of which side of the political divide you are on, it is clear that the competing visions for the next U.S. election are very different. Green New Deal or deregulation? Wealth taxes or round two of tax cuts? Multi-lateral agreements such as TPP and Paris Climate Accord or bi-lateral trade agreements? Medicare for all or a market-based approach to health care? The next election is not going to be about differences on the margins, but about competing general directions. 2020 will quite likely impact your business directly, and given the split nature of the electorate, it is worth being ready for either eventuality.
To manage your business in what promises to be a year of great change, you will need to plan. Understand how different outcomes might impact you and your business. Develop contingency plans for variable and uncertain outcomes. Strong planning may give you an advantage over your competition this year, even in adverse conditions.