Tariffs are not the only weapon of retaliation countries may wield in a trade war.  Governments can pressure trade adversaries at the bargaining table by opening other fronts, such as limiting foreign investment, halting drug enforcement cooperation, or, of particular concern to the corporate world, scrutinizing companies doing business within their jurisdictions.  What does this mean?

Enforcement actions in the anti-corruption arena may increase as the United States, China, the European Union, Canada, Mexico, and others attempt to win the economic showdown.  Companies, particularly those doing business abroad, should ensure their domestic and foreign operations will survive regulatory scrutiny by reviewing compliance programs and conducting internal investigations into potential issues.

The Workplace Enforcement Front

U.S. and foreign regulators, such as China’s Ministry of Justice or the United Kingdom’s Serious Fraud Office, may initiate investigations into companies operating within their jurisdictions.  According to an article in the Wall Street Journal, “investigations into workplace safety and labor issues, tax payments and compliance with business codes” are a real fear of companies in the current trade landscape.

The Anti-Corruption Front

Yet anti-corruption may be an even greater focus.  In 2017, the United States characterized “sanctions, anti-money laundering and anti-corruption measures, and enforcement actions” as “economic tools” that “can be important parts of broader strategies to deter, coerce and constrain adversaries.”  While referring to a national security strategy, this policy statement reveals the administration’s view of alternative, effective trade war weapons.

Trade wars increase the utility of enforcement actions by pressuring trade adversaries.  The longer trade wars last, the more likely governments are to implement non-trade tools.  For example, anti-corruption scrutiny in China is already an important concern for foreign companies given China’s increase in foreign investment and recent anti-corruption efforts.  If China does not scale tariffsat the pace of the United States, it may turn to enforcement actions as an effective alternative.  China has said it will “fight to the end … with all necessary measures.”

A Call for Compliance

Accordingly, companies in all countries should closely examine both domestic operations and foreign subsidiaries to ensure compliance with domestic and international laws.  Compliance officers should be supported with the necessary staff and budget.  Compliance policies and procedures should be reviewed and revised as necessary.  External resources, such as auditors or even an investigative team, should be engaged where appropriate to ensure the company will withstand scrutiny.  With such steps, companies can tune up their compliance efforts and avoid becoming casualties of trade wars.