Matthew Levy: Global businesses should remain nimble and optimistic in 2022
Although the economy soared in 2021, it was another tough year for many global businesses. Supply chain disruptions, logistical delays, geopolitical tensions and the pandemic have all weighed heavily on businesses. Unfortunately, many of these same challenges will likely persist into 2022, but there is reason to be optimistic. The market is adjusting, the US government has implemented relief policies and M&A activity remains at historically high levels.
Raw materials and critical components remain scarce and logistical delays persist. To address the economic impact of supply chain disruption on American businesses, President Biden issued Executive Order 14017 on February 24, 2021, calling for comprehensive supply chain reviews and a interagency action. Throughout 2021, federal agencies investigated supply chain and logistics disruptions and implemented relief measures, such as reducing the number of idle shipping containers at ports, l improving supply chain infrastructure and identifying bottlenecks to help industry adapt production processes to supply shortages.
While helpful, these measures have been slow to materialize; in the meantime, companies have learned to adapt. While supply chains take time to rebuild, the last 24 months have demonstrated the need for diversification.
This administration, like its predecessor, is focused on developing domestic industry rather than foreign supply chains. This overriding policy objective, coupled with global supply chain vulnerabilities and deteriorating relations with China, has prompted many U.S. companies to seek closer suppliers. Supply chains that align with federal policy goals and changing geopolitical circumstances are likely to be more successful in managing future disruptions.
The Biden administration has not actively sought out new trading partners or negotiated free trade deals, but that’s not indicative of inaction on trade. Instead, the focus has been on applying the benefits of existing agreements. The United States recently brought and won a dispute under the United States-Mexico-Canada Agreement challenging Canada’s restrictions on US access to its dairy market. This success prompted members of Congress to use the same dispute resolution mechanism to challenge Mexico’s trade restrictions on GM corn imports and access to its energy market.
At the same time, the United States is rebuilding its relationship with Europe, for economic and strategic reasons. Earlier this year, the United States and the European Union settled their trade disputes stemming from U.S. Section 232 tariffs on steel and aluminum, with both sides dropping their duel cases at the World Organization Trade. The US implemented a tariff quota system for EU steel and aluminum imports, while the EU lifted its retaliatory tariffs on some US products.
This de-escalation of trade tensions will benefit many American businesses while serving a larger political purpose. The United States must enlist the support of its NATO partners in response to Russia’s growing militarism on the Ukrainian border. In the event of a conflict in Ukraine, US companies should expect a deepening of relations with Europe and a rapid response from US government sanctions against Russia.
U.S.-China relations are expected to remain weak in 2022. The Biden administration is preparing to implement the Uyghur Forced Labor Prevention Law in June, which establishes a presumption that products made in China’s Xinjiang province have been made by forced labor. This will require greater supply chain due diligence, mapping and documentation by US importers.
Congress is also considering a series of China-focused bills, including funding for research into emerging technologies designed to increase U.S. competitiveness, changes to the Section 301 rights exclusion process on products made in China, as well as federal oversight and approval of outbound investment to China. where there are national security implications.
The legislation follows the December 31 expiration of the Trump-era Phase I deal with China, which saw China miss $16 billion in purchase commitments and fail to cut certain agreed non-tariff barriers to trade.
What to expect?
Although challenges remain, economic optimism is still high and 2022 should be another strong year for mergers and acquisitions. It is also hoped that the pandemic and the logistics and supply chain issues it has accelerated will be resolved in 2022. Nonetheless, US companies should critically review their supply chains, identify ways to diversify and monitor world events to ensure they can remain nimble throughout the sequel. disturbances.•
Levy is an Indianapolis-based government and regulatory affairs partner and member of the firm’s international team.