{"id":21990,"date":"2017-11-13T21:38:25","date_gmt":"2017-11-14T02:38:25","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/navigating-the-risk-of-america-first\/"},"modified":"2017-11-13T21:43:30","modified_gmt":"2017-11-14T02:43:30","slug":"navigating-the-risks-of-america-first-trade-policy","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/navigating-the-risks-of-america-first-trade-policy\/","title":{"rendered":"Navigating the Risks of \u201cAmerica First\u201d Trade Policy"},"content":{"rendered":"

Trump\u2019s \u201cAmerica First\u201d trade policy has introduced tremendous uncertainty for global companies operating in the US with significant offshore manufacturing or import exposure. [1,2] Immediately after his election, global manufacturers urgently began to assess their risk to potential trade shocks, a task made more difficult by the lack of clarity about policy specifics in the GOP blueprint available at the time [3]. Many of these manufacturing firms called on consultancies to help size the likely impact and develop plans to mitigate risks or take advantage of any new competitive opportunities. Companies with high exposure relative to their competitors developed contingency plans for a time when foreign sourcing and manufacturing might become a disadvantage. Conversely, domestic manufacturing supply chains that have yet to seize the opportunity for lower labor costs in other countries held a potential advantage over offshored competitors. Bain argues that the automotive industry will likely be hit the hardest by any changes to NAFTA or by the imposition of a border adjustment tax, given the extent to which those supply chains rely on goods manufactured or sourced outside of the US [4].<\/p>\n

To illustrate the potential impact of these changes, consider Rassini, an autoparts producer headquartered in Mexico that primarily serves automakers operating in the US (e.g., Ford, GM, Toyota, Honda, Volkswagen, Audi) via manufacturing sites in Mexico, the US, and Brazil. US customers comprised ~90% of its total 2016 sales of ~$900M, suggesting a substantial portion of its revenues are vulnerable to policy changes under consideration by the Trump administration [5, 6, 7]. There is little consensus about the specific policy to be implemented, but for the sake of clarity, let\u2019s consider a simple scenario revealing the impact that a 20% penalty, like the one Trump\u2019s former White House press secretary suggested earlier this year, might have on the company if we assume all of their products sold in the US are manufactured outside its borders [7, 8].\u00a0\"\"<\/a><\/p>\n

This scenario may be unlikely, but it approximately bounds the worst case impact of Rassini\u2019s US trade exposure and can serve as a helpful starting place for developing contingency plans. In the implausible event of a 20% tariff on the ~90% of sales in North America, Rassini risks becoming unprofitable.<\/p>\n

Rassini has proactively taken several actions that help mitigate these risks, including:<\/p>\n