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31st Annual Survey of Corporate Executives Commentary: Political Risk Comes to the United States

International site selection is already changing in response to our new era of presidential tweeting. To last year’s rankings must now be added the challenges presented by major shifts in federal policies and tactics.

Q1 2017
Already some companies have reportedly reconsidered foreign investments after weighing the benefits of cost savings and operational efficiency against the pitfalls of adverse publicity, risk to future government contracts, and the threat of new taxes on trade. Such overt political risk has been quietly influencing a growing number of investment decisions for some time — consider the impact that privacy laws have had on global data center projects. The new political risk originating in the United States, however, takes this concern to another level.

Large technology and manufacturing companies often rely upon internationally integrated supply chains to compete in global markets. Federal policies now under consideration have the potential to create new and contradictory risks that will make managing these supply chains and producing U.S. products in foreign markets more complicated. Being discussed, for example, are expansionary fiscal policies that would strengthen the dollar (and consequently harm exports) while other proposals would increase tariffs, tax imports, and exempt export revenue from federal taxation.

Competing domestic policy will affect different companies differently, and adding to that uncertainty is risk regarding how trading partners will respond to protectionist U.S. trade policies.

Managing these new political risks is now part of the site selection process. The 2016 rankings (particularly on labor quality and cost) still remain highly relevant. But now careful consideration must also be given to changing tax and tariff policy and the risk that new foreign investments might jeopardize future opportunities to do business with the U.S. government. International site selection in 2017 will be unlike any investment environment that we have worked in before.

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