With U.S. President Donald Trump planning steel and aluminium import tariffs, the trade conflicts between America and its partners, not least China, look to be getting serious.
However, while some protectionist measures are coming, companies would be wrong to prepare for a protectionist world, despite the resignation this week of Gary Cohn, Trump's pro-trade top economic adviser.
New market liberalization agreements are also entering into force, notably the Trans-Pacific Partnership, which is being signed March 8 in Chile by 11 countries, even though the 12th, the U.S., pulled out.
Opportunities for trade and investment will remain rich. But executives will have to be nimbler as access rules could become more complicated. Companies will have to work harder than ever to ensure they comply with the regulations.
On the surface, the outlook appears bad for trade growth. Last month's decision by the U.S. commerce department to recommend steel and aluminum tariffs on national security may indeed provoke retaliation, including from China, where analysts hinted that Beijing might target American agricultural exports such as soybeans.
The risk of conflicts spiraling out of control remains. Trump has not repeated the most vitriolic of the trade war threats he made during his election campaign, but he has pledged repeatedly to promote "America First" -- and urged other countries, including Asian nations, to also put their own interests first in dealing with economic policy.
But the U.S. president's own recent moves highlight how hard it is to see trade policy in simple black and white terms. In January Trump surprised the world by hinting that the U.S. might return to the Trans-Pacific Partnership if a "substantially better" deal could be negotiated.
The president's mind is currently occupied with the upcoming midterm elections in November, where voters will pay more attention to effective policy statements than to provocative slogans.
For those who maintain blind faith in him, Trump will do just fine by criticizing the TPP. But the president will realize, to his frustration, that more thoughtful voters will see that the agreement by the TPP-11 nations to push forward means that the U.S. will lose out in some industries.
An example is livestock. The U.S., outside the TPP, will have to accept a 38.5% tariff when it exports its beef to Japan, a major market. Its competitor, Australia, a TPP signatory, will benefit from a tariff cut of over 10% as soon as the trade pact comes into effect. Eventually it will pay only 9% on beef it exports to Japan.
Livestock farmers, important voices in Trump's Republican Party, have repeatedly asked the White House to consider rejoining the TPP. With the midterms fast approaching the administration cannot ignore them.
That said, we can safely say the odds of a U.S. return to TPP under Trump remain slim. The politics of the other 11 states would make it hard. After signing the agreement in Santiago, they will immediately begin ratification processes to make the pact effective in 2019. They will be too busy examining the details to enter new negotiations with the U.S.
If the U.S. tried to rejoin, it would face far harder talks than it did in 2015, when 12 nations reached basic agreement. Trump's condition for a return would be a "substantially better" deal for the U.S. But since it was Washington that walked out, the others will naturally expect major U.S. compromises for allowing it back.
Moreover, U.S. trade negotiators are already fully occupied with possible changes to the North American Free Trade Agreement (NAFTA). The renegotiation of that pact, in place since 1994, began last August and is scheduled to finish this month. The going has been tough. The U.S., which has threatened to withdraw, is hawkishly demanding revisions that are very hard for Canada and Mexico to accept. The worst-case scenario involves surging tariffs in North and Central America, especially carmakers big export-oriented Mexican plants, including Japan's Nissan, Honda and Toyota.
However, key economic alliances are developing worldwide without the U.S. Several important trade negotiations are going forward for agreement in 2018, including the Regional Comprehensive Economic Partnership (RCEP) among 16 Asian nations, such as China and India, and between the European Union and Mercosur in Central and South America. Japan projects that its Economic Partnership Agreement (EPA) with the EU will go into effect in 2019. China's Belt and Road Forum in May 2017 involved representatives from over 130 nations.
With all this going on, it would be a major error for businesses to decide in a short-sighted way that a new era of protectionism is at hand. The key to success in 2018 and 2019 may lie in creating multiple regional trade scenarios and having the flexibility to choose among multiple supply chains.
Global management will shift from owning supply chains in fixed links to the flexibly utilization of different combinations, which take account of shifts in trade regimes. Companies should avoid increasing fixed investments and rely more on consigned manufacturing and on shared services.
For Japanese companies, this should involve more domestic manufacturing and more exporting. The weakened yen, plus Japan's central role in advancing trade pacts, notably TPP-11, make this attractive.
But manufacturing in other countries looks riskier -- in Mexico, for example. Not only is there a danger of the NAFTA talks failing, but the country has in any case drawn Trump's direct wrath. South American countries might be suitable alternatives.
Managers should start checking now that they have utilized the opportunities already offered by existing free trade agreements, and keep a close eye on agreements in the pipeline, like TPP-11 and the Japan-EU EPA.
All businesses, including medium-sized and small companies, should recognize that compliance with trade rules will be a key to success. Rules of origin regulations will matter more than ever. Companies will need to establish systems to ensure compliance. Those which fail will risk a loss of major orders.
Keisuke Hanyuda is partner at Deloitte Tohmatsu Consulting and took part in trade talks as an official of the Ministry of Economy, Trade and Industry.