Feature


International Trade


Sailing into choppy waters


Stuart Relton (pictured), non-executive director at Trade & Export Finance Limited, explores some of the potential implications that Brexit may have on trading internationally


On the 29 March 2017 Teresa May triggered Article 50, which means the process for the departure of the UK from the European Union has begun. The implications of this will not be known for some


time and for now, our focus will be on the trading the UK will be having with countries throughout the world over the next two years. We are an island race and we rely heavily on foreign


trade to prosper – whether that be importing or exporting – and because of that, now would be a great time to assess the risks with trading internationally. So, what are the main risks with international trade? We can categorise them under a few broad headings.


Political A government’s policies can have a major impact on which countries it deals with. Imposed restrictions on imports or increased tariffs on imported goods could mean a quid pro quo response from countries around the world. President Trump may well choose to use higher tariffs on imports to protect their farming industry and their clothing manufacturers. Clearly this would affect UK exporters in these sectors. If states or countries are politically unstable, prone to changes in government or civil wars, have currency fluctuations, high inflation or are bedevilled with a serious lack of infrastructure, selling to or buying from would be a great risk both financially and economically. Some countries align themselves with others and


embargos introduced could prevent any trade taking place.


China offers free loans or free land to some


businesses which of course means lower costs of operation or manufacture for those businesses, making their products more competitively priced. We have a Balance of Payments deficit – we import


more than we export – so our government’s policies in dealing with imported goods such as oil – this is


44 CHAMBERLINK June 2017


heavily taxed under the guise of petrol and diesel – could be inflationary meaning the cost of living over here would increase.


Cultural Each country has its own culture, religious beliefs and behavioural tendencies and therefore if a company is going trade internationally, it needs to be fully aware of how to behave and apply the appropriate business etiquette in the countries it will trade with. Failure to do so could mean an opportunity is lost.


Financial/Payment Terms of trade are paramount in International trading. Financially a business needs to ensure as best as possible it will be paid and on time. Open account trading could be very risky and credit


insurance may well be a necessity. Using Letters of Credit (LC) is much less risky than open account trading, but mistakes in the LC could lead to negotiations with the buyer or seller. If the bank doesn’t accept the LC then it would be


discrepant and could lead to a loss-making trade. Securing credit insurance on companies in certain countries may be difficult and even if you are covered, if there is a problem or dispute with the goods you have supplied, you are not covered. Worse still, your goods could be thousands of miles away racking up storage costs and open to pilferage.


Exchange rate In times when exchange rates are volatile, pricing new export business or buying from foreign suppliers could be difficult and a budgeted profit could turn into a loss. Forward exchange contracts are available and whilst Sterling has dropped in value recently and is a benefit to exporters, companies can get caught out and lose a large amount of money if the rate goes against you.


‘Imposed restrictions on imports or increased tariffs on imported goods could mean a quid pro quo response from countries around the world’


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