prices of goods associated with the
supply chain,” he added.
“Businesses would need to reassess
their costs. If their margins are still
good they probably won’t do anything.
But if they have higher costs — so high
that the project is no longer valuable,
then they will need to act. This is a
tough one to bring to the insurance
market,” the executive said.
Evan Freely, global practice leader
credit specialties, Marsh, noted when
tariffs increase companies’ costs and
subsequently affect market price for
their products, consumers shoulder the
“This is when the pain is passed on
to the consumer,” Freely said.
“U.S. companies hit by retaliatory
tariffs could see a loss of jobs and a loss
of market share. Certain agricultural
companies, for example, also are at
TRADE BARRIER RISK
In addition to tariffs, an escalation
of other international trade barriers has
multinational businesses concerned.
For example, if the situation between
the U.S. and China results in either
government limiting or prohibiting
selling to or importing from the other
country, businesses could be without
needed manufacturing materials thus
negatively affecting the supply chain.
There is concern that China, in
particular, could react to policies of
the U.S. government by using “
backdoor methods” to make business more
difficult for U.S. companies.
“Companies with investments in
China could be targeted for retaliation
by the Chinese government,” said
“And for us, the potential credit
degradation of companies impacted
by potential and unknown retaliatory
Chinese tariffs is a source of concern.”
Worldwide political and economic
influence is also at stake.
“The plot thickens when you think
of China’s growth,” said Abizaid.
“China’s exports to Asia have
doubled, while U.S. exports have
declined by half over the last 10
years. This gives China significant
influence not only in the Asia region
but worldwide. China has been very
determined and active in increasing its
international influence and trying to
establish itself as a global leader. The
Chinese government reach extends
well beyond just Asia and trade.”
RISK MANAGEMENT STRATEGIES
Despite this uncertainty, there are
things risk managers can do to mitigate
risk caused by protectionism.
Among these strategies is
diversifying your supply chain. If a
company’s supplier is located in a
region that is vulnerable to unrest,
tariffs, trade barriers or acts of war,
it could result in the supplier being
unable to deliver its product or make
the product cost-prohibitive.
So instead of ordering all supplies
from one factory, savvy risk managers
are recommending a diversification of
suppliers — simply put, ordering from
several strategically located suppliers.
“It’s all about being agile,” Freely
said. “The more progressive companies
are agile and seek multiple suppliers in
more regions or countries.”
Even with diversification of
suppliers, risks still ensue. Companies,
which have vetted suppliers, still can’t
fully know the risks that exist to their
Additionally, the political climate
worldwide is such that a region stable
today could very quickly become a
region of unrest, thereby rendering
suppliers unable to deliver.
THREE POLITICAL RISK INSURANCE
“A big part of our job is educating
risk managers on the potential impact
on their business of an unpredictable
geopolitical environment and how
political risk insurance products
can provide some balance sheet
protection,” said Abizaid.
“Risk managers know a lot; they
have a great depth of knowledge. They
will come to us having identified where
their company is exposed to political
risks and say here is the situation, and
we work with them and their brokers
to structure a political risk insurance
program to help meet their needs.”
Those recommendations, among
other things, include political risk
insurance products. Some are standard,
while others can be manuscripted to
deal with very specific situations. They
1. Trade disruption insurance:
This product can help protect a
company’s income in the event their
supply chain is disrupted due to
political risks such as war, embargos and
government actions that restrict exports.
2. Contract frustration insurance:
If a multinational business has a
contract with a government buyer and
is concerned that it may not get paid
due to credit concerns of the buyer
or the political risks posed by doing
business in an emerging market country,
contract frustration can be used to
protect a company’s account receivables.
3. Expropriation: This product
covers government interference with
a company’s investment. Key here is
its ability to cover more subtle actions
such as political retaliation from a
foreign government that denies the
ability of the company to continue to
For example, this could include
the cancellation of licenses which are
critical to continue running its business
“It’s all about being agile.
The more progressive
companies are agile and
seek multiple suppliers in
more regions or countries.”
— Evan Freely, global practice leader credit
or the implementation of excessive
taxes or tariffs that no longer make the
business economically viable.
GEOPOLITICAL RESULTS OF
Even with strategic planning,
diversification and insurance
coverage, the consequences of trade
protectionism for the U.S. and
multinational U.S. business might not
be worth any gains made.
“If the U.S. pulls out of some of our
agreements, it will almost guarantee
China’s growing influence at our
expense,” said Abizaid.
“The U.S. used to consider trade
as an extension of our geopolitical
influence. The U.S. government was
a guarantor of democracy around the
world,” he added.
Given this, and the damage to
relationships with our long-term allies,
such as Britain, perhaps it is time for
the U.S. government to consider less
the “price” of things and focus more on
their “value.” &
MERCEDES OTT is managing editor at
Risk & Insurance®. She can be reached at
5 Tips for Managing Protectionism
In this climate of global protectionism, Dan Riordan, president, credit
and bond, XL Catlin Political Risk, recognizes there are significant
complexities for trade.
For companies that have had a longstanding presence in foreign
countries, rising prices, operational di;culties and other trade barriers
each present their own challenges. For newer
companies, it can be more di;cult to establish
themselves, obtain legal protections and invest freely.
Still, Riordan said, there are a lot of good
opportunities for multinational businesses, especially
considering the current infrastructure uptick. And
companies can take proactive steps to protect
“Whenever you have a situation like this, it’s good
to do an assessment,” Riordan said. “What are your
exposures? What are your legal protections? How
aware of risk is your team?”
Riordan said businesses should, of course, “check their political risk
and trade credit policies to ensure that they are adequately protected.”
He o;ered these additional tips for companies that are facing trade
1Perform a risk assessment or resiliency test of international supply chains as well as strategic investments abroad.
2Maintain active communication with local business partners, including distributors and joint venture partners.
3Engage with local government o;cials and the community in international locations.
4Assess legal protections, including provisions for international arbitration in the event of disputes arising.
5Create resilience in your distribution networks to ensure timely access to key inputs of goods and services.