The impact of tariffs on business and law firms

Jaysen

Founder, TCLA
Staff member
TCLA Moderator
Gold Member
Premium Member
M&A Bootcamp
  • Feb 17, 2018
    4,717
    8,627
    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.

    That approach sounds good. If clients are uncertain then they may put investments on hold and cut back on their legal expenses, and there sure is uncertainty in the economy with Brexit, Trump's policies and interest rate concerns.

    It's worth being prepared for the other point of view. To play devil's advocate I might argue that the underlying economy is strong so I'm not too concerned about stocks or a fall in the pound. I would also note that law firms tend to take a long-term view of where the economy will go. For example, even though there's a fair amount of issues in the US at the moment, that won't stop law firms from wanting to break into the market. You may want to note some of these points or justify why you still think there are big issues in the economy.
     

    Jaysen

    Founder, TCLA
    Staff member
    TCLA Moderator
    Gold Member
    Premium Member
    M&A Bootcamp
  • Feb 17, 2018
    4,717
    8,627
    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

    At this point, I would only add the points I mentioned in my last post e.g. fewer foreign takeovers/overseas investment/restructuring. That's because this retaliation isn't too bad and only a response to the aluminium and steel tariffs. However, this is only the beginning and definitely worth following to see how this plays out.
     
    • ℹ️
    Reactions: Salma

    Jaysen

    Founder, TCLA
    Staff member
    TCLA Moderator
    Gold Member
    Premium Member
    M&A Bootcamp
  • Feb 17, 2018
    4,717
    8,627
    Ok that was fast. China's response today has hit the global markets a lot. It looks like both economies are going to suffer unless an agreement is reached.
     

    Salma

    Legendary Member
    Feb 28, 2018
    650
    712
    That approach sounds good. If clients are uncertain then they may put investments on hold and cut back on their legal expenses, and there sure is uncertainty in the economy with Brexit, Trump's policies and interest rate concerns.

    It's worth being prepared for the other point of view. To play devil's advocate I might argue that the underlying economy is strong so I'm not too concerned about stocks or a fall in the pound. I would also note that law firms tend to take a long-term view of where the economy will go. For example, even though there's a fair amount of issues in the US at the moment, that won't stop law firms from wanting to break into the market. You may want to note some of these points or justify why you still think there are big issues in the economy.

    Hey Jaysen! when discussing the above, how can I discuss law firms mantaining a competitive advantage in these circumstances. I am thinking client rapport and new strategies going forward.. any thoughts?
     

    Jaysen

    Founder, TCLA
    Staff member
    TCLA Moderator
    Gold Member
    Premium Member
    M&A Bootcamp
  • Feb 17, 2018
    4,717
    8,627
    Hey Jaysen! when discussing the above, how can I discuss law firms mantaining a competitive advantage in these circumstances. I am thinking client rapport and new strategies going forward.. any thoughts?

    Do you mean in an uncertain economic climate?
     

    Jaysen

    Founder, TCLA
    Staff member
    TCLA Moderator
    Gold Member
    Premium Member
    M&A Bootcamp
  • Feb 17, 2018
    4,717
    8,627
    Yes! so how can law firms maintain a competitive advantage in an uncertain economic climate...

    For these kinds of questions, it helps to put yourself in the position of a law firm. If there's an uncertain economic climate, you can imagine that your clients may be more cautious about expanding or investing. You may need to take on more of an advisory role as clients become more interested in how certain events will impact their business.

    Consider how you can add value to clients in an uncertain environment. If your clients are concerned about the impact of Brexit, a potential trade war or, upcoming European data protection laws, you should be proactive. Perhaps you invest in research, set up specialist teams or offer clients exclusive access to your market research.

    Difficult economic conditions place a downward pressure on fees and encourages companies to shop between law firms. You need to think about how you can continue to win business and retain existing clients. Do you offshore work or invest in technology so you can deliver services at a lower cost? Should you focus on cultivating key client relationships through networking events and client meetings? Should you just quote a lower price or a fixed fee arrangement in your pitch?

    Then you want to consider how you're managing your law firm. If the economic climate is uncertain and clients are less active, you should consider your business model. You could take a defensive stance by investing in countercyclical practice areas, reducing hires and partner promotions, and focus on retaining employees. Lower costs mean you can stay profitable at times when other law firms are struggling.

    Or you could play the long game. You could expand internationally - through mergers or opening up offices - to hedge against a slowdown in certain economies. You could use debt to fund your activities in the hope that once the economy picks up, profits will rise sharply.
     

    Salma

    Legendary Member
    Feb 28, 2018
    650
    712
    For these kinds of questions, it helps to put yourself in the position of a law firm. If there's an uncertain economic climate, you can imagine that your clients may be more cautious about expanding or investing. You may need to take on more of an advisory role as clients become more interested in how certain events will impact their business.

    Consider how you can add value to clients in an uncertain environment. If your clients are concerned about the impact of Brexit, a potential trade war or, upcoming European data protection laws, you should be proactive. Perhaps you invest in research, set up specialist teams or offer clients exclusive access to your market research.

    Difficult economic conditions place a downward pressure on fees and encourages companies to shop between law firms. You need to think about how you can continue to win business and retain existing clients. Do you offshore work or invest in technology so you can deliver services at a lower cost? Should you focus on cultivating key client relationships through networking events and client meetings? Should you just quote a lower price or a fixed fee arrangement in your pitch?

    Then you want to consider how you're managing your law firm. If the economic climate is uncertain and clients are less active, you should consider your business model. You could take a defensive stance by investing in countercyclical practice areas, reducing hires and partner promotions, and focus on retaining employees. Lower costs mean you can stay profitable at times when other law firms are struggling.

    Or you could play the long game. You could expand internationally - through mergers or opening up offices - to hedge against a slowdown in certain economies. You could use debt to fund your activities in the hope that once the economy picks up, profits will rise sharply.

    THANK YOU!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
     

    Nicole

    Legendary Member
    TCLA Moderator
    Feb 28, 2018
    233
    224
    I thought it might be a good idea to add Coralin's posts from her commercial awareness updates that were focused on tariffs (with her permission, thank you!). I think there may be more, so will add when I find them!

    The US-China trade war
    • The Story: There’s never a dull day when it comes to Trump’s negotiations with China. His demands call for, among other things, China to reduce their tariffs, narrow their trade surplus with the US, remove their state subsidies for certain industries, and lift their restrictions on foreign companies doing business in China. The two countries are currently in trade talks after Trump lifted US sanctions on Chinese telecoms company ZTE, allowing it to resume operations (despite the company pleading guilty to illegally shipping US goods to Iran).
    • Impact on law firms and clients: If China concedes on these trade demands, it should be a good thing for foreign businesses and law firms. China has already announced it’ll open its market for financial services and the automobile sector, and there’s scope to allow foreign firms to do business in China without having to set up a joint venture with a Chinese partner. So far, these restrictions have limited a law firm’s ability to do business in the region so if they’re lifted, it opens up a variety of legal work both in and out of the country.
    Trump's escalating trade war
    • The Story - In response to alleged intellectual property theft, the US government has announced plans for a 25% tariff on 1,333 Chinese products. The products include robots, vaccines, electric cars and military weapons. It also features components that US companies may use. China responded quickly with a 25% tariff on 106 products. That includes cars, soybeans and some aeroplanes.
    • The impact on law firms - This is going to impact many US manufacturers and US-China trade relations. The growing trade war hurts companies looking to invest in the US and China or those who rely on international trade and there's a lot of uncertainty about what direction this will take. Law firms have already found it hard to operate in China and they may have to reconsider their expansion plans if this continues to escalate.
    PSA to stay after Brexit

    Trump escalates trade war
    • The Story: It didn't take long for Donald Trump to respond to the recent Chinese tariffs. He has called for tariffs on an additional $100bn of Chinese imports.
    • Impact on law firms: It's clear that Trump won't be the one backing down from this escalating trade war and this suggests it's going to be a long one. Law firms should help businesses to prepare sooner rather than later including those that have the potential to be hit. Some alternative suppliers could adjust their portfolio and use this opportunity to offer their goods locally. The US, EU and Japan also joined the US in a case against China's alleged intellectual property theft at the World Trade Organisation. This puts more importance on the WTO to be able to resolve the dispute or that will significantly affect the future of trade if there limited international enforcement. Financial institutions have had different responses. BNP Paribas noted that there are risks to the Chinese banking system and little to benefit from a trade war. Blackrock said it's an opportunity for negotiations with China. Whilst UBS warned clients about the risk to global growth.
     
    • Like
    Reactions: AzanAshai and Salma

    Nicole

    Legendary Member
    TCLA Moderator
    Feb 28, 2018
    233
    224
    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 :).

    Also I just read your last sentence Jaysen - you were wrong :p
     
    • Haha
    Reactions: Jaysen and Salma

    yanerlim

    Valued Member
    Sep 4, 2018
    113
    174
    Hi! I have a few questions:
    1. Does the US-China trade war actually have a huge impact on China's outbound investment? From what I have read, even though the FDI relationship between US and China is going downhill, they can still divert their attention to EU and other advanced economies. This brings me to my second question..

    2. Does this trade war have any significant impact on MC firms which are more involved in China than US (such as Linklaters)? Because if China can divert their attention to EU countries anyway, does that mean only firms that are largely dealing with US will be the ones receiving the most impact?
     

    Jaysen

    Founder, TCLA
    Staff member
    TCLA Moderator
    Gold Member
    Premium Member
    M&A Bootcamp
  • Feb 17, 2018
    4,717
    8,627
    Hi! I have a few questions:
    1. Does the US-China trade war actually have a huge impact on China's outbound investment? From what I have read, even though the FDI relationship between US and China is going downhill, they can still divert their attention to EU and other advanced economies. This brings me to my second question..

    2. Does this trade war have any significant impact on MC firms which are more involved in China than US (such as Linklaters)? Because if China can divert their attention to EU countries anyway, does that mean only firms that are largely dealing with US will be the ones receiving the most impact?

    1. Difficult to say, but I'm inclined to agree with you. Trade between US and China has definitely dropped, but I don't know China's current trade figures. There are also other factors to consider -- China's capital controls, slowing growth etc., which make it difficult to determine the impact of the trade war.

    You might find these useful: https://www.forbes.com/sites/kenrap...-trade-unfazed-by-trump-tariffs/#48d02b446a6b
    https://www.ft.com/content/aa1c98f2-3c3c-11e8-b7e0-52972418fec4

    2. You are right: the big impact is on Chinese businesses who trade with the US. They will rely on lawyers to advise them on the impact of US trade restrictions/consider how they can mitigate any risks in their contracts. You can also consider the wider impact: What is the cost of an international business investing in an alternative trade route? What are the risks of trading in a new region? What is the affect of global uncertainty on international trade.
     

    wwood

    Distinguished Member
    Jan 19, 2019
    68
    99
    Hi @Jaysen ! Thanks for the post - it's really useful.

    I'm confused - how does the trade war affect international trade finance (say, e.g. structured trade finance)? I searched online but couldn't find a clear answer to that. Websites mostly mention private equity. Thanks so much!!
     
    Last edited:

    W

    Legendary Member
    May 12, 2019
    352
    270
    Hi @Jaysen ! Thanks for the post - it's really useful.

    I'm confused - how does the trade war affect international trade finance (say, e.g. structured trade finance)? I searched online but couldn't find a clear answer to that. Websites mostly mention private equity. Thanks so much!!
    I guess on a simple level with both countries being more protectionist, this could lead to a disruption on global growth and subsequently trade finance in the global supply chain.

    Weaker growth could cause wider trade credit insurance claims. Companies most affected may have to pay more to insure their transactions or look at alternative financings. Businesses would have to re-evaluate their existing trade credit policies to look for any exclusions, for example.
     

    About Us

    The Corporate Law Academy (TCLA) was founded in 2018 because we wanted to improve the legal journey. We wanted more transparency and better training. We wanted to form a community of aspiring lawyers who care about becoming the best version of themselves.

    Newsletter

    Discover the most relevant business news, access our law firm analysis, and receive our best advice for aspiring lawyers.