The trade battle between the United States and China has already created its share of headaches on Wall Street, with stocks swinging wildly on almost any news. Negotiators from both sides met last week even though Chinese officials signaled that the two top demands of the United States were non-negotiable. But that may be nothing compared to the kind of global rearranging that some U.S manufacturing and agricultural firms may need to do if the spat sticks.
Both sectors are at the heart of the various trade sanctions being talked about, and leaders in both are scrambling to figure out the potential impacts of a trade war between the world’s largest economies. “The whole sector is more jittery,” says Pablo Golfari, Korn Ferry’s sector leader for its Chemicals, Materials and Agribusiness practice.
Without doubt, most experts are expecting to some noticeable increases in the cost of steel, aluminum and a host of raw materials in the industrial sector. “One of the biggest questions is where this escalates next,” says Ron Malachuk, a principal in Korn Ferry's Global Industrial Market practice. Down on the farm, U.S. agricultural leaders are wondering whether sales of pork, wine, and a variety of other food products to China could wither—at a time when farming firms are already under pressure from the commodity sector's decline of a few years ago.
Golfari says large companies, such as Monsanto or Cargill, can withstand a trade standoff not only because they have diversified product bases, but also because they can invest and increase production capabilities in other regions to minimize the damage. “But those that do not have a global footprint are going to have to ride it out and figure out a way to manage the situation by investing in higher margin products or some other means,” Golfari says.
Indeed, if the tariffs become a permanent fixture, manufacturing leaders may need to construct new facilities outside the U.S. to avoid the higher tariffs, Malachuk says. “It is creating uncertainty in companies and could impact where they elect to invest capital,” he says.
The uncertainty from the China-U.S. trade spat comes as these same executives watch whether the 25-year-old North American Free Trade Agreement (NAFTA) between the U.S., Canada, and Mexico is killed, revised, or left unchanged.
Experts say all the trade-related turmoil could result in a potential talent turnover. “A trade war creates opportunities for other geographies to fill the void and offer choices for organizations,” Malachuk says. “That, in turn, allows talent to look at opportunities outside the U.S. and China, especially if they are going to be compensated for it.”