BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

New Winners In Global Trade Wars

This article is more than 5 years old.

Corporations around the world are growing increasingly concerned about the immediate threats posed by a number of different global trade disruptions, ranging from the U.S. trade war with China to Brexit. While we still have a long way to go before the final outcome of these geopolitical dramas is clear, large corporations are already acting decisively to insulate themselves from possible downside risk.

ASSOCIATED PRESS

Those actions will have an impact on the broader economy.

Consider the case of UK-based pharmaceutical manufacturers that are staring down protracted Brexit negotiations and an uncertain border with Ireland. Prior to the Brexit referendum, pharmaceutical goods were able to flow freely between European borders, enabling next-day delivery from UK-based manufacturers and distribution centers to large swaths of Continental Europe.

Once final Brexit terms are negotiated, that free flow could be restricted, and with that restriction will come new border controls, traffic jams, and delays at ports. That’s a particular problem for certain pharmaceutical compounds that have a limited shelf-life and must remain climate-controlled while in transit.

According to Kurt Neidhardt, EY Americas Tax Technology and Transformation Leader, certain manufacturers are scrambling to put plan B options in place to deal with a potential transportation slowdown.

“We encountered one company that accessed mobile refrigeration facilities that they could house in Ireland to keep their time- and temperature-sensitive products viable even if Brexit causes massive transportation snags,” Neidhardt said. “While that isn’t a particularly efficient or cost-effective way of conducting business for these companies, it does show the great lengths that corporations are taking in the current trade environment to ensure they have options, regardless of the outcome of pending legislative activity.”

The pharmaceutical industry has also been fighting this issue head-on through a series of lobbying efforts.

“We do absolutely everything we can to get medicines to patients; I have seen us charter planes and people work thorough weekends,” Mike Thompson, Chief Executive of the Association of the British Pharmaceutical Industry (APBI), wrote in a public statement to the UK Parliament in response to the threat of Brexit-related customs delays. “We do whatever we need to do to get a medicine to a patient. If we legally cannot get through borders or we are delayed in getting through, there is nothing we can do about it. We have been imploring people to understand that medicines are different.”

The problem is not unique to the pharmaceutical industry. Electronics giant Panasonic and dozens of financial firms, including the Royal Bank of Scotland and Commonwealth Bank of Australia, have all recently announced plans to move their European headquarters from the UK to Amsterdam. As of the end of last year, a total of 143 new international companies opened offices in Amsterdam, with most citing Brexit-related disruptions to trade and compliance as a key driver of the move.

That is not to imply that every business is getting out of the UK.  BlackRock, for example, the world’s largest asset manager, recently made headlines by announcing that it would keep its European headquarters in the UK following Brexit. Still, the upheaval caused by the ongoing uncertainty surrounding Brexit has business leaders on their toes. According to Thomson Reuters’ recent CFO Brexit Survey, 40% of UK-based finance chiefs said that Brexit has impacted their strategic planning and 30% said they anticipate moving staff out of the UK.

In North America, traditional industrial hubs are being similarly destabilized by the ongoing trade war between the U.S. and China. Nowhere is that change being felt more so than in the Maine lobster industry. China imposed a retaliatory tariff on live lobsters on July 6 of this year, effectively closing one of the industry’s largest export markets. In 2017, the U.S. states of Maine and Massachusetts exported $8.1 million in live lobsters to China. This year, that number is expected to drop to just over $1 million.

Meanwhile, just a few miles north in Canada, shipments of live lobsters to China have roughly doubled since the tariff went into effect. Accordingly, Chinese investors have taken stakes in Canadian lobster plants and shipping operations. Maine lobstermen have begun shopping for warehouse space over the Canadian border and at least one large Canadian distributor, Premium Brands Holdings Corp., has acquired the Portland, ME-based Ready Seafood Co.

What all of these examples show us is that political stand-offs on the scale of Brexit and the U.S./China trade war are never zero sum games in a global economy. Tariffs will not close off access to entire industries or shut down the global flow of commerce. Likewise, an exit from an economic union will not cause an economy like the UK to suddenly close for business.

What will happen, though, is that the corporations caught in the middle of these situations will adapt quickly and find ways to shift operations, personnel, and intellectual property to the region of the world where they can continue to make the most money, regardless of the controversy du jour. Business today is more nimble and mobile than it’s ever been. With increasing amounts of data living in the cloud, more employees working remotely, and more regions of the world putting out the welcome mat for businesses, a physical address is becoming less important than the ability to anticipate and adapt to change.

The long-term impacts of Brexit and the U.S./China trade war are still impossible to project, but they will both alter the course of the future, one business adaptation at a time.