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Inflation has been a concern for most people and there are constant reminders in our everyday lives. From milk to gasoline to hotel rates it seems that prices are on the rise wherever we look. What does this mean for US exporters? Is this the right time to focus on international trade? Let’s explore the major causes of recent inflation, how it is affecting US Exporters, and what can be done to best manage export efforts.
The Cause
How did we get to this point? While the conflict in Eastern Europe has exacerbated inflationary conditions especially with regards to food and energy commodities, it’s necessary to go back to the early days of the Covid-19 pandemic. The US economy rebounded quickly but increased demand stressed already tenuous supply chains. The disruptions to the global economy, particularly supply chains, lead to the enactment of large government stimulus packages. Some countries such as the US chose to issue stimulus checks to citizens and assist firms with unemployment insurance. Other countries, such as many in the EU, chose to extend loans to firms in order to mitigate unemployment and bankruptcies. These economic shocks and policy responses are the main contributing factors to the highest US and in some cases global inflation levels in 40 years.
The Effect
To some it may seem that the trade winds are blowing in the wrong direction but the greatest opportunities can arise from challenges. Recent policies enacted by the US Federal Reserve, such as raising interest rates, will cause pain in the short term but will help to restore price stability. For US exporters rising material costs, labor shortages, freight increases, and diminished purchasing power in international markets are all contributing to export challenges. This in turn has caused many firms to evaluate their international programs.
The Solution
How can US exporters thrive in these conditions? Play the game smarter, focus in on those strategic opportunities as opposed to planting flags around the globe. The current US inflation rate as of January 31st is around 6.5%. When evaluating international markets in 2023 it would be best to consider a market’s inflation rate as part of your due diligence. Is now the time to launch in the UK with 9.2% inflation or would another market such as Saudi Arabia be more attractive at 3.3%? Perhaps offering credit to your international partners will help sweeten the deal? Easing cash flow constraints could greatly improve the chances of activating a market. Partnering with the Export-Import (EXIM) Bank of the United States may offer a way to mitigate overseas credit risk while providing terms to your international partner. Now is the time for patience, focus, and clear strategic thinking.
1. “The US economy’s inflation challenge ” International Monetary, July 12, 2022
2. “Suppy Chains, trade, and inflation” Centre for Economic Policy, January 7,2023.
By David Deslauriers
[email protected]
Athena Marketing International