Newswise — International business is entering a new era defined by heightened uncertainty and rapid change. Trade tensions, policy shifts, and ongoing supply chain disruptions have reshaped the global landscape, signaling that the future of international trade will diverge sharply from past patterns. In this Q&A, Professor Erik Gordon offers perspective on how these developments will likely influence the strategies and operations of multinational companies in the years ahead.

What are some of the biggest challenges facing international business today?

Companies face challenges on both sides of operating an international business — selling their products to non-home countries and buying inputs from non-home countries.

The challenges in selling to non-home countries include predicting demand in foreign markets controlled by changing economic and political forces, predicting the level of tariffs and other retaliatory measures foreign countries will impose, dealing with complex multi-country taxation, and, if you sell sensitive items, predicting home country export controls, such as for advanced chips.

The challenges in buying inputs from non-home countries include inbound tariffs, export controls in the non-home country — for example, on rare earth minerals — and import controls, for example, on electronics from unfriendly countries.

In what ways has recent U.S. foreign and economic policy affected the global market?

Recent U.S. foreign and economic policy changes have altered how companies decide where to locate production facilities. Companies consider operating costs at the location, availability of labor with the needed skills, logistics costs, and taxes, with tariffs often being a less impactful factor. With the recent changes, tariffs will be a factor that drives many location decisions.

The changes will make it more difficult for non-U.S. companies to sell into the U.S. market, and, if other countries retaliate against the U.S., for U.S. companies to sell into non-U.S. markets. Cross-border business is likely to decline. The changes might increase cross-border mergers and acquisitions because it could make more sense to operate in a non-home market by acquiring a company in that market than by exporting into that market and facing high tariffs.

How are U.S.-based multi-national corporations responding to the shifting global economy?

Some U.S.-based multinationals are moving production onshore from near-shore, for example, to the United States from Canada. U.S. companies that rely on low, proverbial “China prices” for imported products are thinking about alternative sources of supply, such as Indonesia and Pakistan.

Many U.S.-based companies are thinking about what they should disclose in their financial statements and securities filings, like 10-Ks, about the risks they face from the changing environment. They do not want to disclose information that competitors could use or that discourages investors. Still, if they do not disclose material risks accurately, they could face class action lawsuits from shareholders who claim they lost money buying shares they would not have bought if the company had made adequate disclosures about the trade risks.

One predicted positive aspect of the current changes in international trade is the expansion of U.S.-based manufacturing. How long might it take to see that growth?

Some moves to U.S.-based manufacturing can occur quickly, such as running extra shifts at U.S. assembly plants with unused capacity. Other moves will take more time. For example, it is difficult for General Motors Corp. to quickly move manufacturing transmissions or engines from St. Catharines in Canada to the United States because the manufacturing process is complex, precise, and requires workers with specialized skills.

Are any countries expected to benefit from the current instability? How might that change how U.S. companies do business abroad?

Countries that do not run large trade deficits with the United States and are seen as friendly to U.S. interests will benefit if higher tariffs have to be paid on goods from other countries with high trade deficits and policies that are unfriendly to the United States. For example, Colombia could benefit from a tilt away from Mexico.

U.S. companies might shift their non-U.S. manufacturing from countries that are targeted with tariffs to countries that do not face higher tariffs. For example, U.S. companies that manufacture clothing in Vietnam could move to Thailand.