As we entered 2017, Prediction Four of our 2017 Predictions for Industry and Global Supply Chains was that major developments surrounding global trade policies and corporate tax reform would occupy the attention of many industry supply chain teams during the year. Our premise was that a climate of uncertain or volatile geo-political developments coupled with an aggressive political and trade agenda of the incoming Trump Administration in the United States would potentially have near or longer-term effects.
One specific element of that prediction were Trump Administration and U.S. Congressional proposals being discussed that would impose forms of border adjustment taxes as part of a major corporate tax reform proposal. Essentially the proposals amounted to taxing corporate revenues and profits based on location of product consumption, essentially resulting in the taxing of imports with a form of a border adjustment tax, while businesses would have their export revenues exempted from corporate tax consideration. Needless to state, businesses whose supply chains had high dependency on importing higher-value finished goods and components would incur significant supply chain cost impacts. We were specifically addressing significant impacts to retail, consumer electronics, apparel and shoe, toys, and other industry supply chains.
This week, Congressional Republicans and the Trump Administration essentially abandoned the border adjustment tax approach amid a heavy amount of lobbying by various impacted industries. According to published reports, political leaders agreed to take the border tax off the table in name of party unity in formulating a workable U.S. corporate tax reform package.
On Thursday, news of this compromise approach sent retail stocks into growth numbers.
Potentially impacted industry supply chains can take a deep breath regarding this latest news.
But, we continue to advise caution for industry supply chain and procurement sourcing teams, including the need to remain diligent in continual analysis and scrutiny of global sourcing strategies in relation to changing sourcing and/or landed cost scenarios.
The current political environment in the U.S. reflects that of constant policy turmoil and continued uncertainty. While approaches to global trade and tax policy show more positive signs toward more rational approaches, anything can happen in this environment of confrontational politics in many dimensions. While the global business front remains optimistic, the geo-political environment is far different and subject to added shocks in the coming weeks and months. In seems that rational thinking has been replaced by the President’s mood of the day and public declarations and that is a clear indication that assumptions related to business as usual remain unwise.
We therefore continue to advise teams to remain vigilant in a detailed understanding all the elements that make up the supply chain network and remain prepared to be able to assess any geo-political or global trade impacts. This remains a time of continual scenario-based planning and what-if analysis, and insure that resources remain allocated for active planning.
Bob Ferrari
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