• An escalating trade war is placing an imperative on businesses to understand how their increasingly cross-border supply chains will be affected.
  • Beyond tariffs, companies must also be attuned to the risks associated with ‘digital weapons’ of trade wars, such as data localisation.
  • Companies can prepare — and be proactive — by gaining a thorough understanding of their supply chains, with help from analytics.

The past decade has given rise to a completely new paradigm for foreign policy. Two divergent trains of thought are operating, one forging ahead with globalisation, the other towards protectionism. One of the effects of the latter has been a trade war, featuring predominantly the two economic powerhouses in the United States and China, while uncertainty continues in Europe as the dust settles from Britain’s exit from the European Union on January 31.

Despite the rising protectionist sentiment and unilateralism among some of the world’s most prosperous nations, the liberalisation of trade continues to be a high priority for many countries, including Australia, which has benefited from its free trade agreements with many of its economic partners, successfully negotiating exemptions to tariffs imposed by its trading partners (such as receiving an exemption to tariffs on steel exports).

But for companies, the increasing complexity of value-driven supply chains is becoming more complicated, meaning that they may be unaware of, or underestimating the potential risks the changing dynamics in this game of trade. This was evident in PwC’s 23rd Annual Global CEO Survey, where trade conflicts uncertain economic growth jumped up the list of CEOs’ perceived threats to growth. Despite this, only around half were restructuring their supply chains in response.

In this environment, it’s increasingly important that executives have a clear understanding of the interconnectivity of their supply chain, to understand the downstream effects — positive and negative — any newly imposed tariffs may have. As a hypothetical, if tariffs make it untenable for US companies to manufacture in China, they may be looking at other markets such as Bangladesh or Vietnam, and in turn this could enable manufacturers from other countries, such as Australia, to create new deals with underutilised Chinese facilities.

Digital weapons
of war

Businesses must also be aware of the other tools that are being wielded in the escalating tit-for-tat nature of modern foreign policy, as these can equally impact the businesses that operate within affected countries. Increasingly, the trade war is being waged on digital platforms. The current so-called ‘Tech Cold War’ is intensifying, centering around the world’s biggest tech companies. Governments have been thwarting the attempts of these companies to establish a foothold in one another’s countries, through sanctions or outright bans.1

Social media is also proving vulnerable to exploitation for political gain. As more cases emerge of political candidates and other bodies using social media platforms to proliferate misinformation in order to sway voters, there are growing concerns that surveillance of citizens is extending to their social media platforms.2 At a time when customer loyalty is becoming increasingly built on trust, and how companies handle their data, social media is a place where trust can be hard-fought and won, but also easily lost.

Data localisation is also a weapon of trade protectionism that is catching some businesses off guard. Restricting the free flow of information is one tool governments are currently using. In a world where cloud computing is fast becoming the norm for data storage, localisation — that is, where any data collected within the national borders must not be removed and stored elsewhere, often in the name of national security – can result in major headaches for international companies where failover and backup points transcend boundaries. For example, the Indian government came under pressure from the US government and tech giants over its proposal to require all data to be kept within its borders.3


While it’s impossible to anticipate the next development in the trade war, businesses can prepare — and more importantly, discover opportunities – amid the uncertainty. Business leaders needn’t take a stab in the dark, or dread opening their social media accounts in the morning. The tools are close at hand, and already available within your company —  they live within the vast amounts of data that every business has at its disposal.

1. Know your global value chain

The first step is knowing who your key suppliers are, who your key customers are, and where your supply chain is weakest and strongest. Access to data from regulators, business systems and suppliers is the key to unlocking visibility. This will drive your ability to predict what’s around the corner and over the horizon. It enables you to respond intelligently to unpredictability.

2. Explore your strategic plays

Next, you must define your long term strategy. Should you seek to minimise negative impact to your business from potential geo-political decisions that affect your physical and digital value chains, or could you be more aggressive, pick what you think is the likely scenario and seek to benefit? We have seen that war gaming scenarios have been helpful for executives to identify and explore how trade moves on a global stage could be responded to by their business. PwC has been running Game Of Trade, a two hour interactive game for leadership teams, in the US, Europe and Australia for this purpose.

3. Be intelligence-led and risk-based

Every decision, whether tactical or strategic, should be based on data derived by insights and be risk managed. The key questions that should be asked are: what are your value chain’s strengths and weaknesses, where are the threats and how do you mitigate them? And remember a value chain covers your digital as well as your physical assets.

4. Strategic cost transformation

Identify the known and unknown costs in your value chain. Treat spending as an investment with a focus on capability building and continuous improvement. This will help set you up to be match fit for unpredictability, which in turn, makes you fit for growth when opportunities present.

5. Be deliberate, be bold

Don’t be spooked by trepidation or unpredictability at the political level. If it makes sense to restructure, swap technology platforms, acquire or dispose of assets, start by gathering the data and gaming out your options, then make a call and act.

As the CEO Survey highlights, businesses are aware of the risks that trade wars pose to their business, but many  are inert when it comes to taking proactive measures to avert the risks — and exploit the opportunities.

For more information on how gamification can help prepare your business for the trade war, visit PwC Australia’s Game of Trade website.


Luke Branson

Luke is a director in PwC Australia’s International Trade practice.

More About Luke Branson