The impact of tariffs on business and law firms

[Jaysen]

The impact of tariffs and/or a trade war on business and law firms - Part 1
​

What’s going on?

On 1 March 2018, Trump proposed a 25% tariff on steel and a 10% tariff on aluminium imports. It’s supposed to be aimed at China - for a long time, China has been exporting excess capacity at low prices. This has been undercutting the US steel and aluminium sector who can’t compete and causing job losses and factory closures.

Business

Damage to trade:

• Whilst the tariffs are supposed to be aimed at China, Canada and Mexico will be hit worse. They export a lot more to the US – 86% of Canada’s steel exports and 88% of Canada’s aluminium exports head to the country. To put this into context, China doesn't factor into the top 10 for the US. [Last night, Trump suggested he may exempt Canada and Mexico but it remains to be seen what he'll do].
• Since it was announced, global carmakers, big exporters like Boeing, US machinery (and others in construction), oil producers (steel is used for drilling), mining companies and US defence companies have seen a fall in their share prices. A rise in tariffs will increase the cost of raw materials and make it more expensive to export their goods. General Motors, for example, saw its shares fall 8.5%, the worst weekly fall in over two years.
• The tariffs are likely to cause a fall in investment by those affected. For example, Electrolux, Europe's largest home appliance maker has put a planned 250m investment on hold. The company had planned to invest in its US plant but is waiting to see the impact on the market and whether it could affect the competitiveness of US operations.
• Canada, Mexico and the EU have threatened retaliatory tariffs. If this becomes a trade war, the impact will be far-reaching. Foreign manufacturers will face rising costs and falling profits, they'll cut jobs and global growth will slow. This will also spread to other sectors and countries. For example, a Deloitte spokesperson suggested it would cost 20,000 jobs across construction, mining and retail in the Australian economy. Meanwhile, Germany has a lot of car manufacturers and exports a lot more than it imports – should Trump decide to tax cars from the EU it would hurt both US and foreign carmakers. Higher prices will then pass onto consumers and that can cut spending.

Interest rates:

• Higher tariffs push up inflation because it raises the cost of raw materials. If there’s a risk of inflation rising too much, that could encourage the Fed to raise interest rates faster than normal.
• On the other hand, if the Fed is concerned about a slowdown to the US economy, it could reduce the pace of an interest rate rise.
• Tariffs influenced Canada's decision to keep interest rates the same this week - one of the reasons being trade uncertainties.
• The European Central Bank (ECB) is also meeting today and it’s likely that the ECB president, Mario Draghi, will be questioned on the tariffs.

China-US relations:

• Trump has been targeting China for some time now. In January, America imposed duties on the import of solar cells. China responded by targeting US exports of sorghum (animal feed). If this escalates, trade between the two countries could be harmed.
• Trump has also been vocal about China’s alleged IP theft. He’s said in the past that a fine will be coming soon. So this could be part of a package of measures against the country.
• The US (and EU) have also become more concerned about Chinese takeovers of US companies. This came to a head very recently as the Committee on Foreign Investment in the United States (CFIUS) intervened in Broadcom’s bid to acquire chipmaker Qualcomm, The regulator cited national security concerns – that it could leave the US open for China to ‘expand its influence’ on the development of 5G technology. It looks like Broadcom want to push ahead but this may stop the deal. Had this gone ahead it would have been the largest-ever debt financing package.

Protectionism:

• The departure of Trump's economic adviser, Gary Cohn has made many worry about a change in policy direction.
• It’s worrying that Trump is willing to use national security to justify his protectionist policies, especially when it’s hitting the US’s closest allies. That could lead other countries to use national security to justify import restrictions.
• NAFTA is currently being re-negotiated. That’s an agreement of free trade between Canada, Mexico and the US. Trump has linked the issue of exempting Canada and Mexico from tariffs on these negotiations. If he pulls out of NAFTA, tariffs will be raised between these countries. And this wouldn't be unprecedented because he has pulled out of TPP, which would have created the largest economic bloc in the world. Many companies have organised much of their business around NAFTA including supply chains and trading relationships. If this ends, the effects will ripple across many industries.

Conclusions

I think Trump proposed tariffs in this way to help his negotiations with NAFTA. But it'll probably prompt China to act faster - so Trump has effectively killed many birds with one stone. He also gets to show to his voters that he’s fighting for US industries and show the world he's tough on trade. If Trump really wanted to target China he could have easily exempted Canada and Mexico (that’s what happened in 2002 when Bush tried to raise tariffs). I’m sure he’ll exempt them soon, but for now, it’s a nice play.

The impact on the market has actually been quite muted despite the headlines. The dollar fell but rebounded quickly and US stocks haven’t been hit that much. It suggests that (1) the market thinks the impact is limited (that Trump will exempt Mexico and Canada or that US policies will offset the impact), (2) the market doesn’t think Trump will actually do it, or (3) the market is simply less responsive to Trump (it’s been rallying despite a number of scandals in the White House).

I don’t think we’ll see a trade war, but I imagine we’ll see more protectionist measures from the US. That won’t be great for world trade, but there is some rebalancing that needs to be done in the market.

I'll send over the impact on law firms shortly .

 

[Jaysen]

The impact of tariffs and/or a trade war on business and law firms - Part 2
​

Imagine you're in an industry that relies on steel and aluminium for imports. That could be the car industry or aerospace or construction. You fear your costs are going to rise and so you need to think ahead of time. Lawyers tend to get involved in these times of uncertainty. There are a few things you could do.

• First, you may want to lock the price in now so that you are less vulnerable to tariffs. Lockheed Martin, a US aerospace and defense company did exactly this. They recently negotiated a long-term purchase agreement for aluminium so they can agree on a price today and mitigate the risk of rising input costs. Lawyers will be involved in negotiating and drafting the agreement. Perhaps on the other side of the agreement, a supplier fears the costs will rise even more. Their lawyers will try to include terms that account for political uncertainty. There are other agreements you can also enter into. For example, you can use derivatives lawyers to draft up contracts that allow you to predetermine the price of your supplies.
• Second, you may want to think about moving your supply chains. If your company is likely to be hit hard by the tariffs due to rising import costs you may want to relocate. That means you'll need the help of a variety of departments at law firms. Think real estate lawyers, finance lawyers and employment lawyers.
• Third, you may not want to make the move yet, but you want to develop contingency plans. That's what lawyers are there for - to mitigate against risk. Perhaps you want your lawyers to research the legalities of your move or undertake due diligence in a particular area.
• Fourth, you may slow down your expansion. If you're a construction company in big-ticket projects your costs will rise. Perhaps your planned billions-of-dollars investment into a new pipeline expansion suddenly isn't viable anymore. Or maybe your legal budget has just fallen. Law firms may have to reduce their price to win projects work and teams may see deals fall through.

Then on a bigger scale, trade lawyers may be instructed to assess the legality of what Trump is doing. He's justifying tariffs on the basis of national security. The EU is also retaliating. Both of these could contravene rules at the World Trade Organisation (WTO).

On the other hand, if the WTO doesn't do anything, it might be seen as weak. Perhaps other countries want to try protectionist measures because they don't think there will be any penalties. If the WTO unravels it could have many implications for the certainty of international trade. Companies will rely on lawyers for advice and countries will need help invoking the WTO's dispute resolution mechanism.

If there's a trade war, international trade slows down and law firms will see less revenue. Perhaps they need to scale down in certain regions - that's something they do a lot, for example, many of the magic circle have cut back in Germany after a tough few years.

If Trump continues to target China, that could impact law firms in a number of ways. There will be more demand for M&A lawyers in the East so they can advise Chinese companies on outbound acquisitions. If US and European regulators continue to crackdown on foreign takeovers, they'll need to work out how to structure the acquisition in a way that gets approval. If Trump spreads his policies to intellectual property, Chinese companies may need help proving that they haven't stolen trade secrets. If a more rigorous IP system evolves in the US, that could be good for the country - one estimate by the New York Times puts IP theft at $600 billion a year, and a more global dispute resolution system could see a lot of work for IP litigators.

 

[Deleted member 21]

Do you think there would be any adverse effects on the stream of private equity work and/or project finance for global law firms?

Also, I was reading this FT article which said that while it`s farfetched to say that "large swaths of the stock market are going to be affected by trade wars but, with rhetoric about tariffs ratcheting up, a pattern appears to be emerging" - do you think that in the long-run this could have negative implications for the equity and bond markets?

 

[Jaysen]

Do you think there would be any adverse effects on the stream of private equity work and/or project finance for global law firms?

Also, I was reading this FT article which said that while it`s farfetched to say that "large swaths of the stock market are going to be affected by trade wars but, with rhetoric about tariffs ratcheting up, a pattern appears to be emerging" - do you think that in the long-run this could have negative implications for the equity and bond markets?

Private equity - it depends on the type of companies they own and to what extent uncertainty impacts their incentive to invest. But yes, target companies in these industries may be subject to lower valuations if their profits fall because of the tariffs.

Project finance - Yes I'd think so. Companies in the construction and oil industries may put projects on hold or they may look to fix the cost of imports by entering into hedging.

I'd say more-so for equity markets. At times of uncertainty, investors tend to move away from stocks and into safer assets. These safer assets include commodities like gold, US government bonds or currencies like the Japanese yen. So I'd expect share prices to fall but bond prices to rise.

The main exception to that is defensive stocks like healthcare, utilities and telecoms. They tend to keep their value at times of uncertainty.

 

[Deleted member 21]

The impact of tariffs and/or a trade war on business and law firms - Part 2
​

Imagine you're in an industry that relies on steel and aluminium for imports. That could be the car industry or aerospace or construction. You fear your costs are going to rise and so you need to think ahead of time. Lawyers tend to get involved in these times of uncertainty. There are a few things you could do.

• First, you may want to lock the price in now so that you are less vulnerable to tariffs. Lockheed Martin, a US aerospace and defense company did exactly this. They recently negotiated a long-term purchase agreement for aluminium so they can agree on a price today and mitigate the risk of rising input costs. Lawyers will be involved in negotiating and drafting the agreement. Perhaps on the other side of the agreement, a supplier fears the costs will rise even more. Their lawyers will try to include terms that account for political uncertainty. There are other agreements you can also enter into. For example, you can use derivatives lawyers to draft up contracts that allow you to predetermine the price of your supplies.
• Second, you may want to think about moving your supply chains. If your company is likely to be hit hard by the tariffs due to rising import costs you may want to relocate. That means you'll need the help of a variety of departments at law firms. Think real estate lawyers, finance lawyers and employment lawyers.
• Third, you may not want to make the move yet, but you want to develop contingency plans. That's what lawyers are there for - to mitigate against risk. Perhaps you want your lawyers to research the legalities of your move or undertake due diligence in a particular area.
• Fourth, you may slow down your expansion. If you're a construction company in big-ticket projects your costs will rise. Perhaps your planned billions-of-dollars investment into a new pipeline expansion suddenly isn't viable anymore. Or maybe your legal budget has just fallen. Law firms may have to reduce their price to win projects work and teams may see deals fall through.

Then on a bigger scale, trade lawyers may be instructed to assess the legality of what Trump is doing. He's justifying tariffs on the basis of national security. The EU is also retaliating. Both of these could contravene rules at the World Trade Organisation (WTO).

On the other hand, if the WTO doesn't do anything, it might be seen as weak. Perhaps other countries want to try protectionist measures because they don't think there will be any penalties. If the WTO unravels it could have many implications for the certainty of international trade. Companies will rely on lawyers for advice and countries will need help invoking the WTO's dispute resolution mechanism.

If there's a trade war, international trade slows down and law firms will see less revenue. Perhaps they need to scale down in certain regions - that's something they do a lot, for example, many of the magic circle have cut back in Germany after a tough few years.

If Trump continues to target China, that could impact law firms in a number of ways. There will be more demand for M&A lawyers in the East so they can advise Chinese companies on outbound acquisitions. If US and European regulators continue to crackdown on foreign takeovers, they'll need to work out how to structure the acquisition in a way that gets approval. If Trump spreads his policies to intellectual property, Chinese companies may need help proving that they haven't stolen trade secrets. If a more rigorous IP system evolves in the US, that could be good for the country - one estimate by the New York Times puts IP theft at $600 billion a year, and a more global dispute resolution system could see a lot of work for IP litigators.

What departments would be involved in helping companies negotiate long-term purchase agreements?

I was also thinking: since this would benefit US steelmakers, they might now invest more or plan to expand, so US law firms would see an uptick in work from this industry?

Can I also ask, in respect to project finance in emerging markets - would the tariffs affect these projects in any way? I was thinking "no" since these are not in the US but maybe the uncertainty in the market might affect them somehow? I am a bit confused.

Lastly, usually when one has to discuss a commercial news story and how it affects the firm, you also have to consider how it directly impacts the firm - here would there be any? I was thinking no?


Sorry for all the questions but I find it good to bounce off ideas with someone - thanks

 

[Deleted member 21]

What I was also considering: the possibility of a trade war is one of the key issues in the press - if this happens foreign manufacturers will face rising costs and lower profits - this could lead to a surge in insolvency/restructuring work and/or companies merging to survive/PE funds buying distressed companies?

 

[Jaysen]

What departments would be involved in helping companies negotiate long-term purchase agreements?

I was also thinking: since this would benefit US steelmakers, they might now invest more or plan to expand, so US law firms would see an uptick in work from this industry?

Can I also ask, in respect to project finance in emerging markets - would the tariffs affect these projects in any way? I was thinking "no" since these are not in the US but maybe the uncertainty in the market might affect them somehow? I am a bit confused.

Lastly, usually when one has to discuss a commercial news story and how it affects the firm, you also have to consider how it directly impacts the firm - here would there be any? I was thinking no?


Sorry for all the questions but I find it good to bounce off ideas with someone - thanks

No problem, you ask good questions.

1. Long-term purchase agreements will probably be banking. If it's more complex or there are hedging agreements then it's more likely to be structured finance or derivatives.
2. Agreed.
3. You can argue both sides here. If we're just focusing on tariffs I'd agree that it's unlikely to affect projects in emerging markets. If anything investors may be more likely to finance deals in the East if they're concerned about the impact over here - although that link may be a little tenuous.
4. It affects the firm through the impact on clients, you can discuss how law firms need to be up to date with developments or consider new contractual terms when negotiating agreements on behalf of their clients. Some issues don't lend themselves to a 'direct impact' compared to say the GDPR, but if you discuss the impact on law firms this way then that's enough.

 

[Jaysen]

What I was also considering: the possibility of a trade war is one of the key issues in the press - if this happens foreign manufacturers will face rising costs and lower profits - this could lead to a surge in insolvency/restructuring work and/or companies merging to survive/PE funds buying distressed companies?

Agreed, these are all good points.

A few extra thoughts - I would also note that it would affect manufacturers and exporters in different ways. If a US manufacturer imports its raw materials from overseas their costs will rise. So that may cause them to raise prices or absorb the cost, which affects their profits. But if they also export their product to a German carmaker, for example, they will be hurt because their goods become more expensive to foreign buyers.

The latter point means that it's not just manufacturers who will suffer in a trade war. If tariffs rise across countries, multinationals who export will suffer due to falling sales (unless of course, the type of good they produce is rare or cannot be produced domestically/by a country not involved in a trade war).

 

[Deleted member 21]

Hi Jaysen,

any thoughts on how the new tariffs that were proposed thursday might impact global law firms? what type of clients might be most affected?

 

[Sandrou]

@DeletedMember21 Hi, just a quick question re white & case. How many words did you write for each question on your white & case app? Also who did you address your cover letter to? Am I write to assume there's no word limit and also a simple "Dear Sir/Madam will suffice?

 

[Jaysen]

Hey,

Sure -

The impact of US tariffs on China on business and law firms​

So let’s start with what Trump is trying to do. For a long time, China has been accused of stealing intellectual property and participating in unfair trading practices. It’s alleged that in many deals Chinese companies try to get foreign companies to part with their IP. They request a lot of information during the due diligence phase of an acquisition and they require the disclosure of a lot of confidential information. It’s not always clear whether the state is involved in this. But it is true that they force US companies to partner with domestic producers in most industries and that they don’t want companies to operate without strict oversight.

Foreign lawyers are under restrictions in China. But they can act as international counsel. Intellectual property lawyers can also help foreign companies protect their technology in China. For example, they may encourage European companies to register their patents or trademarks in China, or they could negotiate and prepare confidentiality agreements. They may have to do this in conjunction with local lawyers because they are prohibited from advising on PRC law or appearing in Chinese courts.

If Trump can use these tariffs to bring China to the negotiating table then that’s a good thing for foreign intellectual property law. That means protecting billions in research and development. A testimony last year estimated IP theft cost between $225bn and $600bn.

But if the tariffs go ahead then many other businesses will be hurt. Many tech companies rely on Chinese suppliers. For example, Apple, Intel and Nvidia all have plants in China. They rely on these low-cost factories for manufacturing and assembly. The tariffs will raise the cost of exporting their product components. So that means they will either have to cut their costs or raise the price of their products. Many of them also sell to Chinese consumers. That will affect their profit margins and their ability to compete. For example, let’s suppose Apple raises the price of the iPhone to compensate for rising costs. Apple’s rival Samsung won’t have to raise the price of Samsung phones because most of their manufacturing is in South Korea. If consumers buy fewer iPhones then Apple may want to exit China and find an alternative supplier. Lawyers can help these tech companies to restructure and advise them on the regulations in a different jurisdiction.

The consequences extend to different industries. For example, over 97% of shoes and clothes sold in the US were imported. Mostly from China. That’s why over 100 retailers including many of the largest brands in the US wrote to Trump urging him to reconsider. They could face higher costs and in return push up the price of their goods. If the tariffs lead to less consumption of products then that will reduce their profits. That could have a number of knock on effects. It could cause job losses, depress financial markets and lead to slower growth in the economy. These events could cause the Federal Reserve to reconsider a rise in interest rates. Sure, that’s good for some companies, but it’s a problem when the cause is market uncertainty.

Protectionism dampens business confidence. That means companies may slow down investments in the US and China. When Trump put tariffs on solar panel imports earlier this year, a number of solar utilities cancelled planned projects. For example, SunPower, a solar company based in California put a $20m expansion on hold. If companies aren’t carrying out big expansion projects then they need less financing. They’re also less likely to go ahead with acquisitions. All of this would put a downward pressure on M&A, banking and project finance work for law firms. If there’s less work to go around then there’s more competition, which may reduce the fees that law firms can charge. There’s where alternative delivery models come can make the difference in a successful pitch.

Alternatively, companies can take steps to mitigate their risks. For example, let’s look at acquisitions. We’ve already seen US regulators intervene when Broadcom tried to buy Qualcomm, and there are further plans to limit Chinese investment in the US. Chinese acquirers could take out insurance policies to cover a failed acquisition. These ‘reverse break up fees’ are drafted in transaction documents, so if a US regulator blocks a takeover, they get a pay-out. Chinese acquirers could also buy representations and warranty insurance. You can find more information in the acquisitions guide: https://www.thecorporatelawacademy.com/why-do-you-want-to-be-a-commercial-lawyer/. But in short, the seller makes promises to the buyer about the target company. These are negotiated and drafted by lawyers. If they’re breached, the acquirer is entitled to a remedy. Representation and warranty insurance shifts the risks from the seller to an insurer. So sellers may be more willing to sell despite this uncertainty and buyers can be confident that they have a recourse.

The impact could also extend to financial firms. At the end of 2017, China announced plans to ease limits on foreign ownership of Chinese banks, a decision that was celebrated by the US financial market. But soured relationships could cause China to reverse course and affect China’s progress of greater liberalisation. Many City law firms have been operating in China for years. It’s expensive and difficult to compete with local law firms, but they hope to be benefit when China does open up its market. If this becomes an unlikely prospect then law firms may reduce their presence in China and close offices. This happened to Linklaters in India. The firm had a formal alliance with an Indian law firm for a number of years in the hope of liberalisation. When that didn’t happen, Linklaters ended the partnership.

When it comes to retaliation, China has a number of tools at its disposal to make life for US businesses difficult. It could further regulate US companies doing businesses in China, limit domestic deals with US companies, discourage Chinese consumers from buying US products or introduce more damaging tariffs like aircraft, cars and soybeans. I’ll take aircraft as an example. Over the next 20 years, China is projected to order $1.1 trillion worth of aircraft. China is Boeing’s largest customer and buys one out of every four of Boeing’s jetliners. The news of the tariffs sent Boeing’s stock down. Many fears that China could retaliate by cancelling existing orders or shifting over to a European manufacturer like Airbus instead.

It’s also a problem for multinationals who do a lot of global trade. Their share price has been hit the most as investors worry about the impact of a trade war. If things develop, companies should develop contingency plans. Lawyers can help them to review supply contracts. Commercial lawyers may look into the duration of these contracts and whether an early termination is possible. This also applies to the suppliers of the suppliers. If they’re likely to be affected, it’s important that companies prepare for disruption and reduce any dependence on a single supplier. Lawyers can help companies to restructure. They may want to sell off an unprofitable or uncertain part of their business in an asset sale, or help companies to consolidate supply chains. Law firms should also regularly monitor these events on behalf of clients – that’s where intelligence and the use of tech can be useful.

Legal certainty is also important for international trade. That’s up to the World Trade Organisation (“WTO”). The US and China have both filed complaints at the WTO and as long as both countries follow the WTO rules then an escalating trade war should be avoided. But it’s a problem if they don’t. That could give countries permission to ignore the rules. Companies that are unable to rely on the international law may choose to produce locally or only trade with countries they feel they can trust, rather than the cheapest. Competition and trade lawyers can advise multinationals if they are uncertain. It becomes important for contracts to be airtight. That means unambiguous drafting and clauses that give parties recourse if things go wrong or if international events lead to problems outside of their control.

 

[Deleted member 21]

Hey,

Sure -

The impact of US tariffs on China on business and law firms​

So let’s start with what Trump is trying to do. For a long time, China has been accused of stealing intellectual property and participating in unfair trading practices. It’s alleged that in many deals Chinese companies try to get foreign companies to part with their IP. They request a lot of information during the due diligence phase of an acquisition and they require the disclosure of a lot of confidential information. It’s not always clear whether the state is involved in this. But it is true that they force US companies to partner with domestic producers in most industries and that they don’t want companies to operate without strict oversight.

Foreign lawyers are under restrictions in China. But they can act as international counsel. Intellectual property lawyers can also help foreign companies protect their technology in China. For example, they may encourage European companies to register their patents or trademarks in China, or they could negotiate and prepare confidentiality agreements. They may have to do this in conjunction with local lawyers because they are prohibited from advising on PRC law or appearing in Chinese courts.

If Trump can use these tariffs to bring China to the negotiating table then that’s a good thing for foreign intellectual property law. That means protecting billions in research and development. A testimony last year estimated IP theft cost between $225bn and $600bn.

But if the tariffs go ahead then many other businesses will be hurt. Many tech companies rely on Chinese suppliers. For example, Apple, Intel and Nvidia all have plants in China. They rely on these low-cost factories for manufacturing and assembly. The tariffs will raise the cost of exporting their product components. So that means they will either have to cut their costs or raise the price of their products. Many of them also sell to Chinese consumers. That will affect their profit margins and their ability to compete. For example, let’s suppose Apple raises the price of the iPhone to compensate for rising costs. Apple’s rival Samsung won’t have to raise the price of Samsung phones because most of their manufacturing is in South Korea. If consumers buy fewer iPhones then Apple may want to exit China and find an alternative supplier. Lawyers can help these tech companies to restructure and advise them on the regulations in a different jurisdiction.

The consequences extend to different industries. For example, over 97% of shoes and clothes sold in the US were imported. Mostly from China. That’s why over 100 retailers including many of the largest brands in the US wrote to Trump urging him to reconsider. They could face higher costs and in return push up the price of their goods. If the tariffs lead to less consumption of products then that will reduce their profits. That could have a number of knock on effects. It could cause job losses, depress financial markets and lead to slower growth in the economy. These events could cause the Federal Reserve to reconsider a rise in interest rates. Sure, that’s good for some companies, but it’s a problem when the cause is market uncertainty.

Protectionism dampens business confidence. That means companies may slow down investments in the US and China. When Trump put tariffs on solar panel imports earlier this year, a number of solar utilities cancelled planned projects. For example, SunPower, a solar company based in California put a $20m expansion on hold. If companies aren’t carrying out big expansion projects then they need less financing. They’re also less likely to go ahead with acquisitions. All of this would put a downward pressure on M&A, banking and project finance work for law firms. If there’s less work to go around then there’s more competition, which may reduce the fees that law firms can charge. There’s where alternative delivery models come can make the difference in a successful pitch.

Alternatively, companies can take steps to mitigate their risks. For example, let’s look at acquisitions. We’ve already seen US regulators intervene when Broadcom tried to buy Qualcomm, and there are further plans to limit Chinese investment in the US. Chinese acquirers could take out insurance policies to cover a failed acquisition. These ‘reverse break up fees’ are drafted in transaction documents, so if a US regulator blocks a takeover, they get a pay-out. Chinese acquirers could also buy representations and warranty insurance. You can find more information in the acquisitions guide: https://www.thecorporatelawacademy.com/why-do-you-want-to-be-a-commercial-lawyer/. But in short, the seller makes promises to the buyer about the target company. These are negotiated and drafted by lawyers. If they’re breached, the acquirer is entitled to a remedy. Representation and warranty insurance shifts the risks from the seller to an insurer. So sellers may be more willing to sell despite this uncertainty and buyers can be confident that they have a recourse.

The impact could also extend to financial firms. At the end of 2017, China announced plans to ease limits on foreign ownership of Chinese banks, a decision that was celebrated by the US financial market. But soured relationships could cause China to reverse course and affect China’s progress of greater liberalisation. Many City law firms have been operating in China for years. It’s expensive and difficult to compete with local law firms, but they hope to be benefit when China does open up its market. If this becomes an unlikely prospect then law firms may reduce their presence in China and close offices. This happened to Linklaters in India. The firm had a formal alliance with an Indian law firm for a number of years in the hope of liberalisation. When that didn’t happen, Linklaters ended the partnership.

When it comes to retaliation, China has a number of tools at its disposal to make life for US businesses difficult. It could further regulate US companies doing businesses in China, limit domestic deals with US companies, discourage Chinese consumers from buying US products or introduce more damaging tariffs like aircraft, cars and soybeans. I’ll take aircraft as an example. Over the next 20 years, China is projected to order $1.1 trillion worth of aircraft. China is Boeing’s largest customer and buys one out of every four of Boeing’s jetliners. The news of the tariffs sent Boeing’s stock down. Many fears that China could retaliate by cancelling existing orders or shifting over to a European manufacturer like Airbus instead.

It’s also a problem for multinationals who do a lot of global trade. Their share price has been hit the most as investors worry about the impact of a trade war. If things develop, companies should develop contingency plans. Lawyers can help them to review supply contracts. Commercial lawyers may look into the duration of these contracts and whether an early termination is possible. This also applies to the suppliers of the suppliers. If they’re likely to be affected, it’s important that companies prepare for disruption and reduce any dependence on a single supplier. Lawyers can help companies to restructure. They may want to sell off an unprofitable or uncertain part of their business in an asset sale, or help companies to consolidate supply chains. Law firms should also regularly monitor these events on behalf of clients – that’s where intelligence and the use of tech can be useful.

Legal certainty is also important for international trade. That’s up to the World Trade Organisation (“WTO”). The US and China have both filed complaints at the WTO and as long as both countries follow the WTO rules then an escalating trade war should be avoided. But it’s a problem if they don’t. That could give countries permission to ignore the rules. Companies that are unable to rely on the international law may choose to produce locally or only trade with countries they feel they can trust, rather than the cheapest. Competition and trade lawyers can advise multinationals if they are uncertain. It becomes important for contracts to be airtight. That means unambiguous drafting and clauses that give parties recourse if things go wrong or if international events lead to problems outside of their control.

thank you for this comprehensive overview, it really is helpful!!

I read somewhere that Free Trade Zones, duty drawback programmes and temporary bond options would be avenues to minimise tariffs - i tried researching with practical law what these are and how they work but in terms of temporary bond options I couldn`t find an explanation of how they apply to minimising tariffs - any insight would be of immense help!

Thank you!

 

[Deleted member 21]

@Denisa Olaru Hi, just a quick question re white & case. How many words did you write for each question on your white & case app? Also who did you address your cover letter to? Am I write to assume there's no word limit and also a simple "Dear Sir/Madam will suffice?

Hi
So it should be addressed to Christina Churchman (see WC FAQs website)

I will check and get back to you regarding words number - you can write as much or less as you feel is necessary to give a comprehensive overview - that`s why there is no set limit let me know if you have any other questions!

 

[Salma]

Hi
So it should be addressed to Christina Churchman (see WC FAQs website)

I will check and get back to you regarding words number - you can write as much or less as you feel is necessary to give a comprehensive overview - that`s why there is no set limit let me know if you have any other questions!

Thanks for this. How was your structure for the CL?

 

[Deleted member 21]

why law, why WC, why me

 

[Salma]

why law, why WC, why me

Thanks!

 

[Jaysen]

thank you for this comprehensive overview, it really is helpful!!

I read somewhere that Free Trade Zones, duty drawback programmes and temporary bond options would be avenues to minimise tariffs - i tried researching with practical law what these are and how they work but in terms of temporary bond options I couldn`t find an explanation of how they apply to minimising tariffs - any insight would be of immense help!

Thank you!

Hey - I've replied to the other thread .

 

[SKH9065]

@DeletedMember21 Hi, just a quick question re white & case. How many words did you write for each question on your white & case app? Also who did you address your cover letter to? Am I write to assume there's no word limit and also a simple "Dear Sir/Madam will suffice?

I'm not sure whether the questions have changed this year, but if it helps, last year my cover letter for W&C was 647 words. I wrote around 550 words for the extra-curricular activities question. I also remember there being no word limit.

 

[Salma]

Hey Jaysen,

I am currently starting my training contract applications and a reoccurring question seems to be how do you think the economic climate affects law firms? In relation to these questions I am thinking to talk about the pound collapsing/unstable stock levels and how that will affect client relationships, business ventures, deals and law firms potentially opening up further international offices.. What are your thoughts on this approach.. Thanks in advance.

 

[Salma]

The impact of tariffs and/or a trade war on business and law firms - Part 2
​

Imagine you're in an industry that relies on steel and aluminium for imports. That could be the car industry or aerospace or construction. You fear your costs are going to rise and so you need to think ahead of time. Lawyers tend to get involved in these times of uncertainty. There are a few things you could do.

• First, you may want to lock the price in now so that you are less vulnerable to tariffs. Lockheed Martin, a US aerospace and defense company did exactly this. They recently negotiated a long-term purchase agreement for aluminium so they can agree on a price today and mitigate the risk of rising input costs. Lawyers will be involved in negotiating and drafting the agreement. Perhaps on the other side of the agreement, a supplier fears the costs will rise even more. Their lawyers will try to include terms that account for political uncertainty. There are other agreements you can also enter into. For example, you can use derivatives lawyers to draft up contracts that allow you to predetermine the price of your supplies.
• Second, you may want to think about moving your supply chains. If your company is likely to be hit hard by the tariffs due to rising import costs you may want to relocate. That means you'll need the help of a variety of departments at law firms. Think real estate lawyers, finance lawyers and employment lawyers.
• Third, you may not want to make the move yet, but you want to develop contingency plans. That's what lawyers are there for - to mitigate against risk. Perhaps you want your lawyers to research the legalities of your move or undertake due diligence in a particular area.
• Fourth, you may slow down your expansion. If you're a construction company in big-ticket projects your costs will rise. Perhaps your planned billions-of-dollars investment into a new pipeline expansion suddenly isn't viable anymore. Or maybe your legal budget has just fallen. Law firms may have to reduce their price to win projects work and teams may see deals fall through.

Then on a bigger scale, trade lawyers may be instructed to assess the legality of what Trump is doing. He's justifying tariffs on the basis of national security. The EU is also retaliating. Both of these could contravene rules at the World Trade Organisation (WTO).

On the other hand, if the WTO doesn't do anything, it might be seen as weak. Perhaps other countries want to try protectionist measures because they don't think there will be any penalties. If the WTO unravels it could have many implications for the certainty of international trade. Companies will rely on lawyers for advice and countries will need help invoking the WTO's dispute resolution mechanism.

If there's a trade war, international trade slows down and law firms will see less revenue. Perhaps they need to scale down in certain regions - that's something they do a lot, for example, many of the magic circle have cut back in Germany after a tough few years.

If Trump continues to target China, that could impact law firms in a number of ways. There will be more demand for M&A lawyers in the East so they can advise Chinese companies on outbound acquisitions. If US and European regulators continue to crackdown on foreign takeovers, they'll need to work out how to structure the acquisition in a way that gets approval. If Trump spreads his policies to intellectual property, Chinese companies may need help proving that they haven't stolen trade secrets. If a more rigorous IP system evolves in the US, that could be good for the country - one estimate by the New York Times puts IP theft at $600 billion a year, and a more global dispute resolution system could see a lot of work for IP litigators.

Hey Jaysen, It would be nice to hear your thoughts on China striking back with tariffs on goods from the US... other than harming a number of companies profits, are there any drastic consequences we should look out for? Thanks