Over the last few months, the headlines have been full of discussions regarding the imposition of tariffs and what it will or will not do to the U.S. economy and the international economy as a whole. While a substantial portion of the popular discussion is often colored by political perspectives, it is important to remember that tariffs (and other free trade inhibiting measures) have been with us for a very long time. They are a fact of global commerce.
What is changing, however, is a global system and the United States’ position in it. In many cases, the trade structure was such that other countries had tariffs on U.S. goods coming into their countries, but the U.S. did not have tariffs (or had a lower level of tariffs) on that country’s goods coming into the U.S. This has contributed to the fact that U.S. has run a $1.2 trillion deficit with some countries of the world, while only running a combined trade surplus of $139 billion with other countries in 2023. This has resulted in a net global trade deficit of $1.062 trillion1.
Whether or not one feels that this global trade deficit represents some sort of unfairness, the geopolitical logic was that such a system would tie other countries’ economies into the U.S., thereby giving the U.S. influence and the leading role in the global trading system—a dominant position from which to pursue its interests. Now, political pressure from those who feel the system did not adequately benefit them is leading to a recalibration of that system. Rather than being something unprecedented, such pressures have existed in some form for as long as there have been societies.
How Does One Navigate Tariffs?
The first thing is to recognize is that what is happening is a generational shift of a trading system, something that will not simply be reversed by a new administration in Washington. One need look no further than the fact that most of the first Trump administration’s tariffs on China were kept in place by an ideologically very different Biden administration. The idea that the world is going to return to a pre-Trump era and that things will go on as before is simply not realistic. For better or worse, the world moves on.
The second thing is to realize that the current period is a transition period in which one system of rules is fading out with the new system of rules for the global trading system having not yet been established. To the extent that the stock market responds to international trade news, the volatility seen in the last few weeks is less about a specific tariff or trade policy and more about the fact that it is not yet clear where the tariff levels are going to be set with different countries. Businesses have proven time and again that they can adjust and thrive in any regulatory market environment or system, as long as the rules are stable and known in advance. During a transition period, such as the one we appear to be in now, the rules are less certain.
For internationally active pump companies, the advice is to remain flexible, stay attuned and closely follow what is happening. Frequent communication and discussions with current customers and suppliers in other countries will be key so you can understand their mindset and potential upcoming challenges and they can understand yours. If developments mean you can no longer source from or sell to a certain partner located in a certain country, it is best to understand that as early as possible so you can begin the process of replacing that source or customer. There few things worse from a business perspective than losing a supplier or customer suddenly and without warning. Increasing the frequency of communication with trading partners can often give you this early warning.
The second recommendation is to avoid getting tied down into long-term commitments while the system is in flux. Currently it is not clear what the outcome of the current administration’s various trade negotiations will be, and while there is no guarantee that there will not be changes after a trade agreement is concluded, the risks of entering into a long-term commitment before the details of a specific agreement are established are not insubstantial.
Overall, going forward, pump companies need to remain flexible and watchful. While the shift in the trading regulatory infrastructure will bring risks to some companies, it will bring opportunities to others. Tuning out the noise of the daily headlines and focusing on deepening relationships with current suppliers and customers will better position a company to manage whatever risks or opportunities the new paradigm will present.
References
For other articles by Chris and Tom Angle, try Understanding Risks in Overseas Expansion or Pump Companies: Sticking With What You Know.
