When the COVID-19 outbreak surfaced, global trade was already being disrupted more severely than at any other point in our lifetimes. In past few years, we’ve seen nationalism and protectionist policies spread across the globe, tariffs used for negotiation and retaliation like never before, and multilateral cooperation giving way to unilateral free trade deals. Ongoing disputes, led by the US and China, were opening a widening east/west split in the world trade order.

While I can’t pretend to know how these trends will play out in as recovery sets in, I expect current trends in global trade are likely to continue. At the same time, responses to COVID-19 may prompt changes to business and operating models that could influence how business and trade is conducted for years to come. While unpredictable, I believe that the transformation will likely be substantial and that significant opportunities may emerge when we get to the other side.

Today’s top challenges

Current travel restrictions, social distancing and other COVID-19 measures are depressing global trade, but the impact is less than you might expect. While cross-border shipments are down, goods continue to flow. Customs authorities and others involved in customs declaration processes in North America, Europe and much of Asia are processing entries at close to normal cycle times. Physical touchpoints such as inspections, hard-copy certificates and signature requirements are being replaced with electronic mechanisms. While implementation challenges remain in some jurisdictions, these new processes are helping to keep goods moving as the current situation endures.

From what I see among the international businesses I work with in the US firm, here are some of the biggest challenges I believe are affecting global trade now.

  • Many jurisdictions have restricted exports on pharmaceuticals, personal protective equipment, and other critical medical products. Some jurisdictions have eliminated tariffs on these goods to accelerate imports, while others may confiscate them at the border for government use.
  • Transportation delays are creating logistical challenges, affecting factory capacity and leading to transportation delays and stoppages, and lack of warehousing space.
  • Quarantine orders and financial concerns are reducing consumer demand for many non-essential goods.
  • Business strategies are being undermined as rising prices and declining profits affect transfer pricing policies.

During our recent webcast, KPMG professionals polled more than 500 tax and business leaders about the greatest cross-border challenges they are currently experiencing. The inability to move products due to export restrictions was the most commonly cited hurdle (24 percent), followed by the increased cost of international movements (19 percent) and slower clearance times (15 percent).

In this environment, companies involved in cross-border trade should give top priority to deepening their understanding of their supply chain, improving its flexibility, and developing plans that can cover all contingencies.

Boosting liquidity and cash flow in the short term

Despite the challenges, we are also seeing strategic opportunities for some companies in the current environment. For example, companies that produce essential goods for which tariffs have been suspended may consider whether to increase imports or production now so they can be moved across borders before tariffs are restored.

Improving liquidity and cash flow are crucial for bridging struggling companies to the recovery, so companies should try to make sure they are taking advantage of the many established methods of managing their tariff costs.  The most common tariff management tactics allow companies to reduce, defer, recover or even often simply avoid tariffs all together. For example, if declining profits cause downward transfer pricing adjustments in some locations, bear in mind that some jurisdictions offer tariff refunds to reflect the adjusted value.

Finally, some jurisdictions are offering loans to support businesses and help keep people employed during the outbreak, often with favorable rates and payment terms, and provisions for debt forgiveness. Consider assessing whether your company meets the eligibility requirements for these incentives, which vary significantly among jurisdictions and are still evolving.

Global trade outlook for the long term

As the world moves into recovery, I expect many of the trends underway in previous years will accelerate:

  • Protectionist trade policies will probably continue to increase, with more licensing or restrictions imposed on medical products and goods, and less priority given to free trade negotiations.
  • Companies are likely to continue shifting to domestic production for critical goods in the short and long terms, and an increasing number of jurisdictions may adopt requirements like the “Buy America” order being considered in the US.
  • Supply chain risk management may draw more focus as companies seek to broaden their supplier base, reduce their reliance on Chinese supplies, and devote more attention to supply chain visibility and contingency planning to address supply chain and transport risk.
  • The shift in retail toward digital models will accelerate, increasing priority on warehousing flexibility and decreasing reliance on just-in-time shipping.

Tax and business leaders responding to our webcast poll expect that the current situation may cause some companies to shift to domestic production for local markets (36 percent). Some respondents believe governments may require the domestic production of some goods (27 percent) or take over production of some goods entirely (11 percent). Less one in 10 think things will go back to the way they were before the pandemic.

China’s role in post-recovery global trade

China’s role in the post-COVID-19 world of global trade remains to be seen. As one of the first jurisdictions to see the pandemic recede, China has given companies a huge amount of financial and practical support to get major companies and supply chains on track, and there are signs these efforts are paying off. Manufacturing, the flow of goods through logistical centers and input consumption at power plants have nearly returned to pre-pandemic levels.

As the world’s companies move toward domestic production and more localized supply chains, we will likely see China shift away from its historic position as a global manufacturing hub. However, as production has resumed in Chinese factories while those of much of the rest of the world remain closed, it may make sense to move some production to China in the short term.

In the long term, the onshoring trend may cause an increasing proportion of multinational companies to wind down their Chinese operations. While China may see some loss of activity and more competition from lower-cost jurisdictions like Vietnam, China’s mature infrastructure, skilled labor force, social stability and capacity for complex, higher-end projects suggest that it will continue to serve as an important manufacturing center in the years to come.

China may also replace some of its export-oriented activity by ramping up “made in China for China” manufacturing policies already in place. China’s duty-free export processing zones are already changing their programs to help export-oriented manufacturers in those zones shift some of their focus to domestic markets. In light of the trend toward localization, international companies in China should consider whether their geographic set-up in the jurisdiction can accommodate a transformation from export-oriented to domestic market focus.

Based on the results of our webcast poll, the majority of respondent companies have no immediate plans to exit or scale down their operations in China, and one in five say they will wait and see before making a move.

However, if they did decide to move manufacturing capacity or sourcing of goods to Southeast Asia, one-quarter of tax and business leaders said Vietnam is their preferred destination, followed by Malaysia (6 percent) and Singapore (4 percent).

Potential benefits of Southeast Asian destinations

Vietnam is among the Southeast Asian countries emerging as key destinations for those exiting China and for those sourcing or diversifying operations in Asia as part of a “China plus one” strategy. In addition to Malaysia and Singapore, other destinations of choice for moving low-cost manufacturing include Indonesia, Philippines, Thailand, Cambodia and Myanmar.

Vietnam has aggressively pursued new industries to move up the value chain by enhancing its business and legal framework, making major infrastructure investments and adopting business-friendly policies to facilitate access to its large, flexible labor pool. These efforts have succeeded in attracting some major telecommunications companies, such as Samsung, to relocate some production to Vietnam.[1]

Vietnam has also an extensive network of free trade agreements in place or in negotiation with other Asian jurisdictions and the European Union to eliminate tariffs and ease the flow of goods. These agreements may become even important post-recovery as other jurisdictions become more protectionist and turn away from prospective new trade deals.

Vietnam was in a strong position before COVID-19, and the responses of its government are designed help the country’s businesses maintain momentum with financial support, loan and tax payment deferrals and other relief.[2] As with all jurisdictions, however, Vietnam’s strength as a manufacturing center after the recovery will depend on its success on the public health front in containing the outbreak.

Corporate tax and trade in the new world order

Beyond geopolitical tariff disputes and logistical supply chain matters, I expect changing international corporate income tax policies will significantly influence global trade after the recovery. Once we have moved through the current period of stoppages, delays and liquidity and credit problems, near-term tax issues will arise due to collapsing revenues and losses in some industries and profit windfalls in a few others.

With substantial transfer pricing adjustments expected in many jurisdictions, many international companies will face issues allocating losses (or super-profits) fairly across the group. Over half of respondents to our webcast poll expect serious losses within their supply chain, and 30 percent do not expect those losses to be distributed fairly across their group. As businesses restructure, significant costs and tax risks may arise, but there will also be opportunities for value chain planning.

Looking to the medium term, the acceleration of trends underway before COVID-19 that change the location of value drivers, such as remote and online sales, digital delivery models, virtual teams and shorter supply chains, will spur the advance of associated trends in tax. In the coming years, we expect global trade to be influenced by more focus on tax morality, the taxation of digital businesses, increasingly unilateral tax policies, and a surge in double tax issues and cross-border tax controversy.

We may also expect governments to rely on raising more revenues from income taxes, rather than austerity measures, to repair their balance sheets. Digital businesses, which may have fared better than most during the COVID-19 situation and which many believe don’t pay enough tax where they make profits, are a likely target.

Given the direction of travel before the pandemic and the disruption that has come in its wake, international companies engaged in global trade may need to rethink all aspects of their supply chain and tax planning structures. Companies may need to rethink where to locate manufacturing operations, where to hold their intellectual property, where to put people and activities. Above all, as companies consider their operations, they should look ahead to how they can maximize their ability to seize the tremendous opportunities that are widely expected to arise in the post-COVID-19 world.


1. “Samsung’s departure is anew blog to Chinese manufacturing,” Financial Times, October 17, 2019.

2. Directive No.11/CT-TTg, 3/2020.