The second Trump presidency has started with a flurry of activity characteristic of Donald Trump's management style. With the rapid movement over the last two weeks, it comes as no surprise that the EU is bracing for potential changes the US might try to force in the areas of economics, global security, and climate policy.
Impacts on the EU Economy
Trump's platform centers on an "America First" agenda that prioritizes buying American products, hiring American labor, and fomenting an isolationist approach towards manufacturing and development. Previous posts in this series have considered what higher tariffs will mean for China and Canada, but the EU can also expect similar impacts if the Trump administration also imposes tariffs on all foreign-made goods – including goods acquired from the EU. The baseline percent the Trump administration starts at seems to hover at 10%, but a 10% increase on EU-originated goods could push them further out of reach of American consumers.
The US relies on the EU for access to pharmaceuticals, industrial machinery, vehicles, and electronic/technical equipment. Tariffs on these top-imported items will result in disruption of service and access to goods many need on daily basis, such as critical medications. Beyond the personal level of impact, tariffs disrupt the supply chain (as we’ve examined in previous posts). Supply chain disruption creates economic instability for companies that are taxed and companies that rely on those taxed companies, not to mention an all-around increase in the cost of goods to offset the cost of tariffs. We can expect the same calling cards of increased prices to follow EU tariffs: reduction in available GDP; loss of jobs in both American and EU companies; and higher prices for consumers.
Simply put, if businesses cannot generate enough revenue to cover costs like salary and benefits, the amount of products made or services provided is reduced and staff are fired because there is not a need for their labor, finally culminating in less available goods and less money generated in the economy, all of which are usually viewed as portents of contraction instead of growth.
Make no mistake, the EU is not above retaliating against US-imposed tariffs. We should expect the EU to respond to US tariffs by placing tariffs on US exports to Europe. If this occurs, the hardest hit industries in the US would be the aerospace sector, natural gas suppliers, makers of industrial equipment, and producers of some pharmaceutical and agricultural commodities.
What can your law firm do?
Law firms on both sides of the Atlantic are ideally positioned to help clients steer their business through tariff complexities and mitigate risk. Many firms have already established strategies for reviewing new compliance requirements and reviewing existing agreements and procedures to ensure a client’s compliance with changes. While there is no way to assure a client they carry no risk, there are immediate measures your clients can take to reduce the risk they do carry and set them up in the strongest defensible position if a dispute arises.
Walker Clark can help.
Walker Clark members have a combined total of more than 100 years of experience in legal consulting in more than 100 different countries. To say that we understand the rigors of creating a strategy for compliance in an uncertain economy is an understatement. Over the years, we have identified a few key principles that we have taught to firms to assist them in keeping clear of acrimony when government actions impose disruption.
- Understand the work your client does. The industry sector in which your client conducts business invariably will feel impacts from government sanctions. Know which areas of business stand to absorb the hardest hit, so your firm can be ready with explanations to reassure your clients.
- Understand your client’s risk. If your client produces or relies on a product/service that anticipates impact from higher tariffs, begin by explaining to the client what new risks they could encounter if necessary changes aren’t made. Next, teach your client how to amend their product classification to try and avoid risks to the greatest extent possible. And finally, be ready to offer alternate systems of supply that are not affected by tariffs to help them create new contracts and minimize business disruption.
- Compliance, compliance, compliance. Offer to review your client’s current procedures to analyze any gaps in compliance as soon as possible. Compliance gaps are generally easy to resolve if they are identified early and addressed immediately. The greatest risk to your client comes with basic non-compliance with a regulation; there is no way to defend non-conformance with a clearly enumerated expectation because ignorance is not a defense.
- Policy analysis and retaliation preparation. Appoint key staff to watch and understand regulatory changes in the subject matter affecting your clients. When governments move rapidly, rules change rapidly too. Understand how your client’s government intends to respond to regulatory changes to help them prepare for fluctuations in accessible markets. We suggest starting with the International Emergency Economic Powers Act (IEEPA).
Conclusions
Tariffs -- especially the irrational ones currently coming out of Washington, DC -- cause economic harm for both the countries that have tariffs imposed upon them and the countries that impose the tariffs. However, your client does not have to suffer total losses due to regulatory changes. Understand some of the historical context about how we arrived at this point, coupled with sound planning, will protect your client in the midst of uncertainty.
We understand that these times are stressful for you and your clients. Walker Clark can help you create a replicable system your firm can use to analyze and adjust the internal systems your clients rely on to conduct business. Reach out to us today for a free 30 minute consultation to discuss your questions and possible courses of action.
Change is inevitable, but it doesn’t mean collapse. A bit of sound planning is all that is needed to create strong boundaries around your client’s (and your firm’s!) profitability in the coming years.
Sarah Max
For more information about Walker Clark strategic planning services, click here.
