The trade dispute between the USA and China is having a profound impact on the global economy. We would like to shed light on what consequences this could have for Europe and what GRC measures European companies should take to best prepare for the challenges.
Background to the trade conflict
The trade conflict began in 2018 when the US imposed high tariffs on Chinese goods under the Trump administration in an attempt to reduce the trade deficit. China responded with its own tariffs, leading to a so-called tariff war. The Phase One agreement in January 2020 was intended to defuse the conflict, but many structural problems remained unresolved. With the USA’s announcement that it would impose further punitive tariffs, the conflict intensified again.
Impact on the global economy
Shift in trade flows: The trade dispute led to a shift in trade flows. Countries such as Vietnam and Mexico benefited from shifting trade relationships as companies sought alternative supply chains.
Economic uncertainty: Uncertainty in the global economy increased, discouraging companies from long-term investments and slowing global economic growth.
Impact on Europe: Europe, which has close economic ties with both the US and China, faces several challenges:
Economic burdens: European companies could suffer indirectly from trade conflicts if global supply chains are disrupted and demand for European exports falls. Industries such as the automotive and mechanical engineering industries are particularly affected.
Geopolitical tensions: The conflict could drag Europe into geopolitical tensions. The EU could come under pressure to side with either the US or China, which could strain relations with both sides.
Trade diversions: Some European companies could benefit from trade diversions by acting as alternative suppliers, while others could be negatively affected by increased uncertainty and volatility in global markets.
GRC risk reduction measures
To minimize the negative impact of the trade conflict and prepare as best as possible, European companies should take the following governance, risk management and compliance measures:
Comprehensive risk analysis: A thorough risk analysis is essential to identify the potential impact of the trade conflict on all business areas. This analysis should be updated regularly to respond to new developments.
Supply chain diversification: Companies should diversify their supply chains to reduce dependence on a particular country. This can be achieved by identifying alternative suppliers and moving production to other regions.
Compliance Management: A robust compliance management system is necessary to ensure compliance with all relevant commercial laws and regulations. This includes continuously monitoring regulatory developments and adapting internal guidelines accordingly.
Conclusion
The trade conflict between the USA and China represents a significant challenge for the global economy and poses risks for Europe. However, through proactive and flexible GRC measures, European companies can prepare for the uncertainties and ensure their competitiveness in a changing trading landscape. A strong GRC strategy is key to overcoming these challenges and ensuring long-term success.