Thought Of The Week

Best Laid Plans

Last week we looked at the growing trend of protectionism that many countries are practicing now or are contemplating by either increasing tariffs on foreign-made goods or restricting their use entirely. Here in the U.S. we are witnessing an object lesson that shows that it is much easier to think up and enact protectionist legislation than it is to deal with the consequences. Consequences the lawmakers don’t have the expertise to consider or even imagine.

In February 2009, the U.S. Congress, as part of its Economic Stimulus Program, imposed "Buy American" provisions which bar projects from receiving federal money that buy goods or materials from abroad. The theory is that this will help U.S. businesses. In reality it has created a distributional and logistical nightmare and now has the U.S. in a polite and relatively minor dispute with our largest trading partner and very good neighbor to the North-Canada. Many products in a variety of the industries use dozens of components. Many of these are manufactured in Canada. So a company using or manufacturing products or systems that have one or two Canadian-made parts may lose or be disqualified from receiving federal contracts due to the Buy American program. Also, many products, in the process of being finished have components passing back and forth across our border with Canada. So how is it calculated if these are Made in the USA or not? Many U.S. companies are saying their businesses are suffering huge potential losses (of contracts) due to the Buy American program. They cannot change the complex and highly integrated supply chain systems already in place with Canada. This could affect over 4 billion dollars worth of business in the water and wastewater systems industries alone.

Plus these types of sanctions always provoke retaliatory measures. China has announced it will curb imports of chicken and auto parts to combat the tire tariff. President Obama and Canadian Prime Minister Harper have to sit down and work through such important issues as charter flights for sports teams. If you are a hockey or baseball fan, this is serious business.

For more information on this, international marketing logistics, regulations, market entry strategies, please contact doug@focus-worldwide.com.