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May 22, 2019

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City National Bank

Trade wars: How to prepare and maintain your business during uncertain times

City National trade wars native

Understanding international trade regulation, the imposition of tariffs and the significance of emerging trade wars is necessary for consumers and business owners alike. Some businesses may be especially vulnerable to changes in trade governance and may not realize it.

“It’s still too early to know what will happen, but it’s important that business owners are prepared,” says Steve Bash, senior vice president of the International Banking and Trade Finance Division at City National Bank. “They must examine their supply chains and take proactive steps to minimize disruptions. The stakes are high right now.”

Because trade disputes have far-reaching impacts, businesses of all kinds should ready themselves for the different possibilities.

Which businesses may be affected?

Tariffs and trade wars can be felt by businesses of any size and span all industry sectors. Large corporations that maintain a high volume of international trade are often thought to bear the brunt of global trade disputes, but small- to medium-sized businesses typically suffer consequences sooner because they tend to be more susceptible to fluctuating supply costs.

Even if your company does not operate internationally, your suppliers may, and tariffs could introduce new challenges and increased costs for them. This, in turn, could mean increased costs for your business.

“Most businesses have never had the need to understand where or how their supply chain provider is doing business. However, with punitive tariffs potentially affecting partners in a supply chain, companies may find significant disruptions to their business that they may have never considered or planned for,” Bash says.

If I’m a business that is affected by tariffs, will my bank provide financing to me?

“It depends on the bank,” Bash says. “At City National, we continue to lend to companies who may be subject to tariffs, but we do look at the potential financial impact and discuss reasonable mitigants.”

NAFTA’s effect on business

In 2016, the International Trade Administration reported that small- or medium-sized enterprises (SMEs) accounted for 98 percent of exporters and 97 percent of importers in the U.S. In the same year, one-third of goods trade (by value) came from SMEs.

This is especially significant as officials renegotiate the North American Free Trade Agreement (NAFTA), because Canada and Mexico are the top two export destinations for U.S. SMEs, according to the U.S. Chamber of Commerce. Though the exchange of tariffs between the U.S. and China have been driving headlines lately, the outcome of the NAFTA renegotiations could hit domestic small- and medium-sized businesses the hardest.

How to prepare

• Know if and how your business could be affected.

If you’re in an industry that is being directly tariffed or threatened with tariffs, work with a financial adviser to evaluate the monetary affects of the tax. If you’re not facing direct tariffs, closely examine your supply chain.

“Ask all of your suppliers if they’re being impacted by tariffs,” Bash says. “You should do your best to develop the healthiest relationship possible with your business partners to allow for an open dialogue. Communication is key. These negotiations will go on for a while, so it’s important that you’re working with people you can trust.”

If you find your supply chain is affected by tariffs, consider the financial consequence and whether you need alternative suppliers.

• Join a trade association.

Companies not already involved with a trade organization should consider joining. “Trade associations offer peer advice, educational resources and industry-specific news that can influence business decisions. Typically, trade associations also work with lobbyists and legislators who advocate for an industry’s interests in Washington, D.C.,” Bash says.

The Nevada District Export Council (NDEC) is another good place to start.

• Work with your financial advisers.

Financial advisers and/or bankers can be instrumental. “The type of bankers you work with are important—make sure they have a wide range of experience with international trade and a breadth of companies that engage in cross-border activity. This is a time when companies should understand the value that their bankers can bring,” Bash says.

If your banker is not well-seasoned in international trade policy, find one who is.

Should companies move forward with international expansion right now?

“I wouldn’t recommend undertaking a major expansion in a country the U.S. has trade tension with, but make short-term, tactical decisions with that in mind,” Bash says. “Business goes on—you can’t let politics get in the way. You just need to be smart about it and use the resources you have available.”

Buying or selling with a non-USD currency

Regardless of international trade climates, being able to buy and sell in foreign currencies is beneficial as a U.S. company because it allows for financial agility. However, you should consult with a foreign currency adviser if negotiating a non-USD contract.