What is the Significance of Politics in the Commercial World?
When we break down our understanding of commercial awareness, it seems to revolve mainly around navigating business trends and how they affect certain sectors, whether that be climate change, oil prices or a global pandemic. However, politics is a branch of commercial awareness that can be overlooked, but is equally important to understand as a commercial lawyer. Understanding political implications is certainly about comprehending jurisdictional regulatory changes, such as varying GDPR regulations across Europe. But more than that, it’s about political movements, acts and relationships and how they can affect the commercial world.
Now, understanding politics is not nearly as intimidating as it may seem. It’s not about understanding the intricacies of every government, but about navigating relevant jurisdictions and why a business operating in that country may care about what’s happening. Certainly, the volume of politics one may be encountering depends heavily on the firm you are working in. A domestic, high street firm will not have to be aware of politics in the same way as an international, full service firm. Therefore, the perspective we will be taking in this specific article is predominantly through the eyes of a global law firm, however this is all useful to apply just for general commercial awareness purposes.
The relevance of politics to lawyers is integrated in varying ways, but there are two predominant branches that are specifically important to note:
- Political Relationships
Political relationships are incredibly volatile, now more than perhaps ever before. The relationships between leaders seem to be conflated, whether that be between the OPEC plus countries, or as close as Scotland and England. Such fragile relationships need to be monitored for multinational companies, so they may prepare for and respond to rapidly changing legislations that may affect the model of their business. The clearest way to exhibit this is through an example. Let’s take the recent developments in the relationship between the US and China.
Since mid-2018, China and the US have been engaged in a bitter trade war stimulated by the ‘threat’ posed by Huawei. The controversy resulted in the imposition of import tariffs from both parties. Over the years, the war has escalated dramatically, with the US implementing tariffs on US$550 billion worth of Chinese products, and China responding with tariffs on US$185 billion worth of US goods. Despite the continuously declining relationship, in January of this year there seemed to be truce on the horizon with the proposition of the Phase One Deal. The Deal essentially renewed commitments on intellectual property, technology transfer and currency practices, shining a hopeful light on repairing the frayed relationship between two of the world’s biggest economies. However, the COVID-19 pandemic threw a major spanner in the works: Trump accused China of covering up the pandemic, inditing them with ‘secrecy’ and ‘deception’, demanding they be held accountable as a result. China resolutely denied these claims, responding by accusing the US of trying to divert public attention. Naturally, these claims led to further tension between the two nations, with the US banning foreign companies selling semiconductors to Huawei in May of this year, as an attempt to thwart their production. The tariffs and trading bans are predominantly due to a political mistrust between the two nations, and this feud is having very real effects on the commercial world.
The US-China trade war is specifically affecting the technology industry, forcing them to move their supply chains and affecting their general business models. Tech giants such as Intel, Alphabet and Micron are amongst those who have had to rethink their strategies. The trading bans and tariffs have meant companies based in the US have had their costs rise substantially, affecting their capital investments and rates of return, as well as facing significant delays to production. Many supply chains are being forced to evolve, where companies are looking to invest in the downstream hardware assembly of parts such as semiconductors in the US, thereby reducing their dependence on importing from China. The COVID-19 pandemic has fuelled this trend. Earlier this year, Taiwan Semiconductor Manufacturing Co Ltf (TSMC), a leading supplier to Apple Inc, announced their plans to build a $12bn chip factory in Arizona, illustrating the transition that is happening as a result of these political moves. As companies are looking to restructure, legal EIPAF, technology, IP, capital markets and more teams come into play to help their clients migrate to this new, domestic form of operation.
Overall, these kinds of political repercussions present opportunities for law firms, but they also need to be able to react, especially in volatile situations. The restructuring of supply chains need to happen at a pace that can keep up with political relationships, so the corporate world does not fall victim to the decisions of the executive.
- Sovereign Clients
The second scenario is where the client is the government in itself. Governments call on commercial lawyers for a multitude of matters, such as the issuance of bonds, debt restructuring, arbitration and litigation issues and representing sovereign wealth funds. When a firm is operating for a government, they are usually referred to as sovereign clients. While a sovereign client is essentially the same as any other client, there seem to be certain skills and mannerisms that must be adopted, especially to be able to jump frequently between different sovereigns. White & Case LLP, for example, advises and guides a multitude of sovereign clients across varying juridictions, from representing Mexico in their challenge of US regulations in regard to anti-dumping proceedings, to drafting legislation on behalf of Poland’s mass privatization programme. In these cases, lawyers may have to be aware of electorate responses and input from international bodies, being able to liaise and tailor their services for that specific government. Additionally, one must remember that, more often than not, a government is a temporary entity, where elections can result in a change of power. As a result, values, policies, attitudes and environments may change, and in turn, so must the lawyer’s approach. When we say a client may be politically charged, this cannot be more so than in the case of a sovereign client. The lawyer must be ready to adapt their style and interaction to maintain a relationship with a sovereign client, even though the foundation of that client may have drastically changed.
How do I Incorporate Politics into my Commercial Awareness?
There are of course a multitude of political trends happening, and it is impossible to keep track of everything. As mentioned earlier, no one is expecting you to understand the ins and outs of everything happening right now. Therefore, it helps to have a strategy when approaching politics with a commercial intent.
Firstly, make sure to research the relevant firm and know 1) which jurisdictions they are operating in and 2) what sectors they specialise in. From there, you can narrow down your search, targeting the specific political trends that affect that firm and their clients. For example, if the firm operates in the Middle East and represents firms in the oil and gas sector, you may choose to keep an eye on the relationships between Russia, Saudi Arabia and other OPEC nations. Alternatively, if the firm represents Nigeria as a sovereign client in the financial sector, understanding developments in Nigeria and surrounding countries is vital, as well as tracking current global attitudes towards the country that may benefit or hinder investment into the country.
The Bottom Line
The relationship between politics and law is incredibly interesting. When researching the two in tandem, one comes to realise how intimately connected they are, to the point where one cannot operate without influencing the other. Politics weaves its way into commercial law in different ways, whether that be through influences, blockades or as the client themself. Clients want to know what trends are influencing their businesses, and the political relationship between major nations is just as, if not more important, than the status of the bond market. As a commercial lawyer, it is incredibly important to be aware of what is happening in politics, whether that is in the domestic or international sphere. So when you are reading about world politics, be sure to ask yourself how this event could affect a business or a project. Commercial awareness is more than understanding the commercial world. It is about looking at the world in its entirety through a commercial lens.