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ACE: Political & Security Risks

In April, the Commerce Department developed the Assess Costs Everywhere (ACE) tool, which outlines the costs and risks firms need to weigh when considering the location of manufacturing operations and supply chains. Many of these are hidden or hard to quantify. This post, the eleventh in our series of blogs on ACE, explores one such area: political and security risks.

Political and security risks refer to political or criminal forces or events that can interfere with a business’ normal operations. Examples of political and security risks include expropriation, capital controls, breach of government contract, and adverse regulatory changes, war, terrorism, and civil disturbance. The impacts of these types of events can range from the temporary disruption of companies’ operations to the nationalization of company assets or, in a worst case scenario, events that threaten employees’ physical safety. It should be noted that in most countries, the probabilities of these risks are low. And while the United States is not entirely immune to these security problems, compared to most other countries, it offers a stable and predictable environment for business investment. The U.S. consistently ranks among nations with the fewest political and security risks for businesses and their workers.

The map below compares the risk score of individual countries. It shows that the United States is one of the nations with the lowest security risk based on Economics and Statistics Administration analysis using data from the Economist Intelligence Unit.

Companies seeking to operate or source from abroad should take into account, first, the fact that political and security risks do exist and, second, the relative likelihood that these events will occur; accordingly, they should dedicate resources to prepare for various contingencies. There are public and private organizations that provide information and offer insurance programs to mitigate some of these political and security risks. These organizations include the Overseas Private Investment Corporation -- a U.S. government financial institution, the Export-Import Bank of the United States, the World Bank’s Multilateral Investment Guarantee Agency, and private insurance firms. Please refer to ACE for more detailed description of these resources and for a wealth of information that highlights the low costs and risks of doing business in the U.S.

Fenwick Yu, Economist


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