International Business Outlook

While the global economy shows new signs of stabilizing, most businesses still face significant challenges. Unlike previous post-war recessions, the current recession is not a simple supply-side inventory cycle but rather the result of a tectonic shift toward deleveraging that could significantly dampen consumer demand in the next few years.

Although this secular economic shift is the unfortunate consequence of decades of excess, a likely outcome will be that governments of major economies will pass the cost of the economic downturn to other countries. How will that happen? Protectionist polices. With overcapacity in production chasing after reduced global demand, it is likely we'll see a backlash of protectionism from Washington to Beijing in a vain attempt to keep job losses at home minimal. It is essential that businesses anticipate and adequately prepare for this possibility so that they will not be caught in the crossfire of a trade war.

Protectionist measures may include:

• Sharply higher tariffs aimed at specific industries or import line-items
• Import quotas, which are more politically palatable than outright tariffs
• Exchange rate manipulation, which functions as an indirect tariff and export subsidy
• Non-tariff barriers such as increased red tape and convoluted procedures for firms trying to gain access to foreign markets

Businesses should work closely with their suppliers and preferred financial institution to thoroughly examine their global supply chain and strategies going forward. City National Bank has a long tradition of collaborating with clients to spot potential threats to the business environment and assist them in preparing for these challenges. For example, City National Bank can:

• Help to establish an integrated global supply chain finance program, with inherent savings that could potentially offset a tariff
• Introduce clients to renowned freight forwarders who can advise on more advantageous logistic arrangements
• Lock in favorable exchange rates with forward contracts or options for the next few quarters
• Assist in gaining a strong foothold in foreign markets through City National's deep working relationship with the U.S. Department of Commerce and the Export-Import Bank of the United States.

To speak with a City National Foreign Exchange specialist, contact (213) 673-8670.

This article is for information and education purposes only and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations or needs of individual clients. Clients should evaluate the merits and risks associated with relying on any information provided.