What Do the End of Free Trade Policies Mean for Spend Management?

It's official. If you believe the news headlines, the United states is turning inward. According to a recent Wall Street Journal-NBC News Poll the core of the Republican party appears to be turning against free trade. And given that Republicans have long been the advocates of trade in the US legislative and executive halls, this is a bad sign for all of us. According the poll, "By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president. The sign of broadening resistance to globalization ... [shows] a fraying of Republican Party orthodoxy on the economy ... Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports. That represents a challenge for Republican candidates who generally echo Mr. Bush's calls for continued trade expansion, and reflects a substantial shift in sentiment from eight years ago."

It amazes me that Republicans in America can be turning against free trade. After all, at least in the past couple of decades, the center-wing of the Republican Party led the free market march on the world stage. But regardless of my opinion, now that there appears to be a tide turning against global trade in the US, I thought it might be worth sharing a few thoughts on what a new isolationist approach will bring from both economic and procurement perspectives.

First, the economic angle. I'll summarize it simply: if we're going to restrict cheap imports, then we better be willing to pay more. It's precisely because of free trade that the US is one of the only countries in the world where a middle class family can afford two cars, a house and enough electronic, computer and media gear that could serve as a shared communications center in most cities in the developing world. If we move to more isolationist policies, import prices will go up and the standard of living will go down. It's that simple.

From a procurement perspective, organizations will need to be prepared to rapidly evaluate changing taxes, tariffs, import duties and other levies on what they're sourcing from abroad. In some cases, rising import prices might render global sourcing decisions neutral or cost ineffective. Those companies which are agile and can quickly resource domestically or to other regions which the US government is not targeting for import restrictions will be the ones who suffer least from changes in trade and economic policy. But as important, procurement and operations organizations will need to build tighter linkages with the import, customs and trade desks in their companies. Perhaps in this scenario, the goods that you're currently buying from China could be transshipped to a more "friendly" nation from a US trade perspective which we've got lower import duties from. Again, all of this is hypothetical. But if I were you, I'd prepare for what the free-trade tea-leaves are beginning to read.

Jason Busch

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