It can be unwelcome news that the success of your business is, in part, out of your control. If your business involves importing or exporting inventory, it pays to be aware of and be prepared to mitigate potential impacts of trade policy on your business.
What are barriers business face?
Simply put, trade barriers are measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services. Tariffs, quotas and subsidies are perhaps the most common trade barriers, but many types of government regulations can be characterized as trade barriers. For example, a restriction where grocery stores in Ontario, Canada can only sell Ontario Vintners Quality Alliance wines can be a trade barrier, notwithstanding the fact that foreign winemakers could technically get certified.
Trade barriers are not always purely economic – for example, the United States Government restricts exports of sensitive equipment, software and technology to certain countries in order to protect its national security and foreign policy interests.
How can trade policy affect business?
Trade policy can have nuanced effects, but the main way that changes can affect your business is by simplifying or complicating the process to trade with suppliers and customers abroad. Some types of trade barriers can also change trade dynamics by making imports more expensive, or by making exported products less competitive in overseas markets.
Tariffs are a legitimate barrier to trade under the global trading regime set up under the World Trade Organization. A tariff is essentially a tax on imported goods. If your business competes against importers to supply the domestic market, then tariffs may make your business’ products more competitive. On the other hand, if you’re an importer, or if you export to a country that levies tariffs, the products you supply will be less competitive.
Governments in some countries pursue a policy of subsidizing certain critical industries, whether for political or economic reasons. A subsidy is a payment made to producers of certain products (agricultural subsidies are quite common, for example). The impact of subsidies on your business will, of course, depend on whether your business is receiving the payment or competing against a business that is.
Market access requirements
Some countries restrict imports, either by way of a limited quota or by imposing import standards. Import standards can often be difficult to meet and can often change with limited notice. This raises major concerns if your business’ supply chain relies on imported materials, or if your business primarily sells to the export market.
Managing the impact of trade barriers on inventory
It can be difficult to predict changes to trade policy – trade talks tend to occur behind closed doors and media reports are often limited. In that context, the best way to mitigate trade risk may be by building contingency into the supply chain, ensuring that no one overseas supplier is a critical point of failure. Inventory management software usually has the ability to keep track of inputs, providing some visibility over changing import prices.
Topics: freight, purchase order recosting, tariffs, trade barriers, trade policy