If Tariffs Fail, What's Next?
As we all watch these tariff wars unfold, General Counsel (“GC”), often like to prepare for the worst. You might be asking, “If tariffs fail, what comes next?”
It’s hard to say, but a possible next step in these trade wars could be sanctions. Sanctions are different from tariffs. Tariffs allow business transactions to continue, albeit at higher costs. Sanctions, however, can halt transactions entirely. They can also happen FAST. There often is very little lead time, or grace period to winddown transactions, when sanctions are imposed.
In terms of market disruptions, sanctions can result in:
· Critical imports or exports being blocked;
· Inability to use USD for sanctioned transactions;
· Prohibited from providing any financial support, including offering extended payment terms;
Just to name a few. Attempting to bypass sanctions is also illegal and considered "facilitation." Also, we won’t even talk about secondary sanctions. That’s a special kind of nightmare.
GCs familiar with sanctions know what to expect, because you’ve navigated this space before. For those GCs with no sanctions experience, maybe because your organization deals primarily with NATO/allied countries, or your goods are typically unrestricted anywhere in the world, entering into this new world of sanctions can be daunting.
So, what do you do? It’s still early, and, again, hopefully, the trade war won’t escalate any further. But if you need something new to worry about, I suggest the following:
· Get familiar with sanctions. If you don’t know what they are, learn about them and the possible consequences of violations;
· Know your primary import/export sources. Is there any overlay with the countries involved in tariffs negotiations with the United States?;
· Do you know the names of your organization’s supply chain/logistics managers? Do they know yours? Who would you call to help organize a rapid response team to sanctions, if needed?;
· Could your company stop trading with a particular country on a dime? How would you communicate the change throughout your organization?;
· Who would be the point of contact for questions from the field or from your suppliers or from your customers?;
· How would you know if you have restricted goods, or goods from/to a newly sanctioned country, in transit?;
You don’t need to answer these questions at this point. It’s enough for you just think about the questions that would need to be answered should sanctions be imposed. Moreover, there might be more or different questions that you would need to ask based on your industry.
If you need help strategizing (as opposed to providing legal advice, although I could connect you with excellent trade control counsel), GC Support Services is here to help. But, truthfully, I think it’s still too early. You’ve only got so many hours in a day. I’m sure today’s problems are enough for you to deal with.
So for now, let’s all sit tight, stay informed, and continue to hope for the best. If things deteriorate and you need me, you know how to find me.
Good luck!
Nadine
Founder, GC Support Services