There are different things you can actively do as a business owner or representative to ensure that all your import and export activities go smoothly. For example, calculate the customs value, comply with the FDA restrictions, and apply strategies to minimize any disruptions in your supply chain.   

These actions are things you can control to significantly impact your internal operations and increase efficiency, reduce costs, delays, and enhance compliance with international trade regulations. However, it is also important to be aware of the factors outside your control, like any geopolitical change, as they can affect tariffs, import costs, and much more.

This article aims to help you understand what it means, with the intention to better anticipate potential challenges with the support of your mexican custom broker, and adjust your strategies accordingly, even in the face of major global events.  

The basics of geopolitics

On the surface, “Geopolitics” is only the name given to the study of the effects of geography on international politics. But at its core, geopolitics is about understanding how borders, natural resources, national interest, cultural factors and globalization influence the power dynamics between nations.

In the best-case scenario, these interactions make it possible to create commercial and political agreements that turn countries into allies. However, it only takes a moment of tension around one of these geographic factors to develop a “Geopolitical risk”. 

An example can be found in the ongoing conflict between Russia and Ukraine. The roots of the conflict trace back to Russia’s desire to maintain influence over former Soviet territories and their resources and Ukraine’s aspirations to integrate into the European Union and NATO (North Atlantic Treaty Organization)

This is a geopolitical situation due to the proximity of the two countries. But also because it involves the interests of multiple nations, particularly in terms of territorial integrity and economic control. 

Impact of geopolitics on tariffs and import cost

Territorial disputes, competition for natural resources, political instability, terrorism, nationalism, power shifts, and natural disasters are just some of the reasons a geopolitical risk may occur. 

During this scenario, changes like trade fragmentation are expected, directly influencing the fluctuation of tariffs and other import costs on commercial activities. Having the support of custom brokers in Nuevo Laredo is key to navigating these complexities.  

Trade fragmentation

Trade fragmentation is an economic phenomenon in which global trade and production networks become increasingly segmented due to various factors, including geopolitical tensions.

If we go back to the example of Russia-Ukraine, it can be noted that the situation has highlighted a division in global politics. With Western countries and a large portion of Europe supporting Ukraine. This, in turn, has made evident their dependence on Russia’s natural gas. 

As a result of the geopolitical tensions and the trade fragmentations triggered by the conflict. Many countries have been forced to seek alternative energy sources, suppliers and apply new commercial strategies due to significant changes in tariff and importation costs. These changes can be understood through the following points: 

1.- Increase tariff 

Many countries have responded to trade fragmentation by imposing higher tariffs on goods from certain nations, particularly those they view as adversaries. 

The increase in tariffs is intended to protect domestic industries from foreign competition and retaliate against unfair trade practices. It also plays a political role when this increase is used as part of a plan designed to weaken their adversary’s economy.  

However, it can also lead to higher consumer prices and reduced access to international markets, which will slow global economic growth.   

2.- Selective tariff 

Countries may implement selective tariffs in reaction to geopolitical issues to protect specific industries vital for national security or economic stability. This means applying higher taxes on specific products of political adversaries to weaken their economy or express disapproval of certain policies and actions. 

However, selective tariffs can mean a lower tax as a way to create alliances among nations. For instance, a country may lower tariffs from allies while increasing them on goods from rival nations. 

But what if the cause of geological risk isn’t a political or territorial dispute, but a natural disaster? A selective tariff would be the solution to adjust import costs and thereby facilitate the arrival of goods and international support that can aid the affected nation. 

How businesses adapt to geopolitical changes

If the situation is out of your hands, 一whether, because you’re a commercial ally of a country in geopolitical risk or your nation, is directly affected by the conflict 一 the best thing you can do as a business is to adapt and move forward with new strategies. For example: 

1.- Diversification of supply chains

Even if there is no sign that a geopolitical crisis will happen, it is important that as a business, you diversify your suppliers’ catalog and material sources to reduce dependency on any single country.

Doing so creates resilience in your supply chain, allowing business and their custom brokers in Manzanillo to adapt more efficiently to unexpected tariff and import costs disruptions. 

2.- Engage in CSR 

CSR or Corporate Social Responsibility is a business model where companies make a conscious and considerable effort to actively help society through environmental initiatives, transparency policies, fair treatment of their employees, charity donations, and, in the case of geopolitical events, by supporting those nations in need.  

Engaging in these activities helps businesses build a positive reputation as loyal and reliable commercial allies to turn to and be considered in deals where the tariff may be lowered or changed to benefit all parties involved. This also enhances their image in front of potential investors whose values align with the causes that the business supports. 

3.- Strategic pricing and tariff management

When faced with new tariffs or trade barriers due to geopolitical events, businesses can adjust their pricing strategies to maintain profitability while staying competitive in global markets. This may involve increasing prices to cover the added costs of tariffs or shifting production to countries with more favorable trade agreements. 

The weight of geopolitics on commercial activities is significant, but with the support of a mexican custom broker and information like the one you read today, it will be clearer the kind of plan you may need to apply to ensure a smooth and successful operation in international trade.