Shippers urged to be their own advocates on trade policy

Shippers urged to be their own advocates on trade policy

Tariffs are creating stress for manufacturers and their holding companies but also opening opportunities for M&A activity. Photo credit: Shutterstock.com.

Manufacturers should not rely solely on trade associations to resolve trade policies they feel unfairly affect their businesses, trade attorneys told a conference of industrial companies and private equity owners this week.

Tariffs enacted and threatened by the Trump administration over the last year, including an increase from 10 percent to 25 percent on $200 million worth of imports from China on Friday, have aided some US manufacturers and hurt others. Speaking at the Industrial Exchange conference in Miami Wednesday, David Filippelli, an attorney and partner at the private equity firm Atlas Holdings, said that individual manufacturers are often more effective pursuing changes to trade agreements or relief from tariffs than broader groups.

“You all have trade association relationships,” he said. “But they’re not a cover in our view. It doesn’t mean your downside is protected or that you’re creating value. Most associations don’t know about your specific problems, or they aren’t equipped to solve them. They shouldn’t give you comfort unless you’re engaged. At Altas, we’ve tried to develop a strategy that’s very specific about solving the business problem we face” from tariffs, rules of origin regulations, and duty assessments.

But that doesn’t mean that manufacturers should go it alone, he said. While individual companies can be more effective in bringing cases to the US International Trade Commission, joining with fellow companies in the same industry can build the leverage that trade associations are designed to provide. “Ultimately, in a trade case, you have strength in numbers, so sometimes it pays to work with competitors.”

Policy pros, cons

Meanwhile, unstable trade policies in the United States and Europe are affecting merger and acquisition (M&A) activity, Filippelli said, because companies are wary that products made by potential M&A targets might be subject to new or existing tariffs.

Michael Taylor, a trade attorney with the law firm King & Spalding, said that in the current environment, there is likely unrealized value for those manufacturers that have the trade compliance processes in place to manage such deals.

“If I had an unlimited checkbook, I’d be buying manufacturers in the US and Europe right now. If you know what you’re doing, there is some tremendous value out there. But you have to avoid the lemons,” he said, such as companies that don’t correctly report their harmonized tariff schedule (HTS) codes to customs.

One thing that is clear, according to Taylor, is that “tariff rules are changing trade flows.” As an example, China’s retaliatory riposte to the Trump administration’s tariffs on Chinese goods has included a like-for-like 25 percent tariff on US soybean exports. China has used other markets for soybeans while US soybean producers have had to seek out other markets.

Steve Orava, a partner at King & Spalding, said the opacity of the Trump administration’s strategy on trade has made navigating the current environment that much more difficult.

“This administration doesn’t want you to know what’s going [on],” he said. “The tactics are different [from previous administrations]. It’s a different paradigm, a transactional approach to negotiation. It’s a New York City real estate deal, not a diplomatic negotiation.”

Orava noted, however, that the “administration is good in terms of their door [being] open,” to US manufacturing interests. “If you create jobs, they will develop some creative ways to help you do that,” he said.

That focus on creating manufacturing sector jobs in the US, and trade policies associated with doing so, is a departure in itself from how previous administrations viewed trade. Whereas in the past, the focus of trade negotiations largely centered around the agriculture industry — predominantly opening market access for exports — now the focus is firmly on growing the domestic manufacturing sector. According to US Census data, durable goods orders were up 8.1 percent year over year in 2018 and another 3 percent to date in 2019.

When it comes to trade associations, Orava said manufacturers trying to advocate for a certain policy should be aware that industry groups often have their hands tied due to the variety of their membership. For instance, some associations have importers that are hurt by tariffs and exporters that are helped by them. In those situations, associations are unable to strongly advocate for individual members on an issue that might adversely impact another member.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.