In an uncertain economic and sociopolitical world, firms and their tax teams must stay alert to shifting patterns of global trade, including the ongoing risk of protectionism.
Slow road to recovery
The 2007–08 financial crisis and the global recession that followed have had a lasting detrimental effect on world trade. But having languished below the pre-crash average for most of the past decade, trade volume growth has shown signs of a modest improvement over the past 18 months.
In recent years, G20 leaders have focused on implementing global tax reforms including greater transparency with the Organisation for Economic Co-operation and Development (OECD). Now the G20 are turning their efforts to boosting the economy through pro-growth trade practices and tax policies.
Global trade growth and forecast 2003–18
Annual percentage change in world trade volume
Between October 2016 and May 2017, members of the World Trade Organization (WTO) recorded the lowest monthly average number of new trade barriers since 2008. Over the past decade, however, temporary trade barriers have been on the rise.
The specter of protectionism looms large today. Events such as Brexit in the UK and threats by the US to scrap the North American Free Trade Agreement (NAFTA) and impose special import duties or nontariff barriers under Section 201 domestic industry safeguard laws are causing uncertainty. In March 2018, US President Donald Trump announced plans to impose tariffs on steel and aluminum imports. The European Union responded by threatening tariffs on imported jeans, motorcycles and bourbon.
New trade tariffs and duties and the slowdown of goods at borders could significantly disrupt businesses’ global supply chains going forward.
Free-trade agreements and temporary trade barriers 1990–2015
Although there have been some encouraging signs for global trade — including the recent uptick in volume growth and decline in the number of new trade restrictions — the overwhelming message is that businesses need to be ready to act and adapt their strategy as new developments unfold. The outlook remains uncertain given the significant risk of volatility in national trade policies.
As Indian Prime Minister Narendra Modi said at the World Economic Forum in Davos, Switzerland, in January 2018, “forces of protectionism are raising their heads against globalization. Their intention is not only to avoid globalization themselves but they also want to reverse its natural flow.”
Businesses need to monitor developments closely; seek professional advice about potential changes of policy on tariffs and duties in their export markets, and be ready to reassess their business models if necessary.
Companies should be working toward data modeling and analytics in their export markets now so that their responses can evolve at the same rate as geopolitics.
How we can help: Indirect taxes
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