​The Winds of Trade Wars

Compliance with changing U.S. tariff policies requires a robust response plan, says Matthew Bonavita, director of internal audit at New Balance.

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​How can a global company determine how to comply with volatile trade regulation shifts?

In a changing global landscape, organizations need to be aligned, agile, and prepared. Specific to tariffs, the compliance office, supply chain, and public affairs/regulatory teams need to work together to develop a comprehensive response plan. In an escalating trade war, all functions need to understand their roles within the plan and be agile enough to ensure timely implementation. Items to prioritize are reviewing third-party contracts, updating costing models, investigating alternative supply options and coordinating with logistics, and ensuring controlled processes are in place to comply with changing duty rates and classifications.

As a risk leader within the organization, internal audit first should vocalize and elevate the potential impact of geopolitical risks, including trade wars and tariffs, to the audit committee, senior leadership, and others within the business. Second, internal audit should work with the appropriate teams to ensure response plans are in place if trade wars escalate or continue for an extended period. Third, internal audit should review the customs compliance process, paying particular attention to classification procedures and documentation to minimize the risk of transshipment [through intermediate sites] and payment noncompliance.

What are some of the risks to a company with a global supply chain?

The most immediate implications of tariffs are higher costs, limited alternative sourcing options, more complex logistics, and greater compliance risks. Businesses may look to adjust their manufacturing and sourcing strategies, but these cannot be changed overnight. The reality is that most companies have spent years planning and building their global supply chains. 

Although New Balance has been focused on preparedness and agility within our supply chain — including running internal scenarios for a trade war escalation — sourcing shifts are still capital-, resource-, and time-intensive challenges. All departments, from development through transportation, need to be in alignment and coordinating fully to achieve the overall strategic objectives.

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