As 2019 came to a close, manufacturing companies were likely feeling more optimistic about future prospects for their bottom line. After all, two major world events were finally settled down after months of uncertainty. Across the pond, UK residents overwhelmingly voted for Boris Johnson as Prime Minister, giving a boost to his plan for a swift Brexit, which he promised voters to wrap up by the end of January. Closer to home, Canadians – along with numerous global economies – breathed a sigh of relief when the US and China agreed to a tentative trade deal, halting the next scheduled round of tariffs originally scheduled for December 15.
Is the trade war really over? Not quite. Though further threats were neutralized, existing tariffs remain in effect. Those looking for a complete rollback to pre-conflict days might be waiting a long time. Some argue that the current levels of duty are permanent. Afterall, neither country has much incentive to make the necessary concessions. China, which weathered the trade war better than the US, is unlikely to relent without something in return. President Trump, faced with a re-election campaign in 2020, may not be eager to remove tariffs either, as the dispute stemmed from his personal agenda. In fact, the ripple effects of the trade war will continue long after Trump leaves office, regardless of the 2020 election result.
It’s important to remember that the deal was more of a cease-fire than a peace treaty. Though a more formal deal is expected soon, unpredictability has been the hallmark of the dispute. This leaves Canadian manufacturers and related businesses in a precarious position. While the global economy suffered from conflict as a whole, 2019 had the weakest growth since post-recession 2009, manufacturing was hit particularly hard. Costs, a volatile foreign exchange rate and general instability made the past 18 months hugely challenging for many businesses.
Manufacturing companies employed several different tactics to manage the increased costs including raising prices, absorbing the costs and exploring other sources for overseas production. Each option comes with its own set of negative repercussions and makes it difficult for the business to remain competitive, let alone grow and expand.
Unfortunately, even though major global issues like Brexit and the trade war have calmed down, 2020 is unlikely to provide much reprise as there’s more volatility on the horizon. In fact, Morgan Stanley identified 10 major market risks for the year including Iran relations, the implications of long-term low interest rates, the US election and more.
Because of the current environment, it’s best for manufacturing organizations to plan ahead, rather than react to unexpected global events. I work with numerous companies in the industry to understand their foreign exposure risk and determine the best way to manage unexpected shifts. How much volatility can your bottom line withstand? Don’t wait until it’s too late.
Ramy D Daoud, MFin
Western Union Business Solutions