LEAD 4023 Module 3 Trade Policy and Currency Exposure Analysis Example

Labels, Tariffs and a Moving Yen: Trade Policy and Foreign Currency Exposure in a Maple Company's First Export Contract

Student Name

American College of Education

LEAD4023: International Business Leadership

Module 3 Assignment

Instructor Name

October 26, 2026

Introduction

Module 2 recommended exporting maple syrup and maple sugar to Japan through an importer-distributor. Before the first container ships, the company must understand two kinds of exposure that domestic sales never raised: the trade rules that govern whether and how its products enter Japan, and the risk that movements in the exchange rate between the dollar and the yen change what each shipment is worth. This paper analyzes both, using the planned first-year volume of about 8,400 cases, and recommends how the company should protect itself.

Tariff Barriers

Tariffs are taxes on imports, paid by the importer and usually passed on in price. The United States and Japan concluded a trade agreement that took effect in 2020 and lowered or removed tariffs on a range of U.S. agricultural products. Whether maple syrup and maple sugar fall under reduced rates, and at what level, depends on their specific tariff classification, which the company will confirm with the U.S. International Trade Administration's tariff tools and the distributor's customs broker before setting prices. The lesson is procedural: tariff rates are product-specific and change, so the company should rely on current official classification rather than on general statements about agricultural trade.

Non-Tariff Barriers

For food, non-tariff measures often matter more than tariffs. These include food safety rules, labeling requirements, permitted additives and import notification procedures. A review and meta-analysis of research on agri-food trade found that such measures frequently restrict trade, especially for smaller exporters, although some standards can also ease trade by giving buyers confidence in imported products (Santeramo & Lamonaca, 2019). For the company, three requirements stand out. Every shipment must be notified to Japanese authorities by the importer. Labels must be in Japanese and include the importer's name, ingredients, net content and best-before date in the required format. And products with additives, such as some flavored candies, must be checked against Japan's list of permitted substances. Pure maple syrup is the company's best first product partly because it has a single ingredient, which makes non-tariff compliance far simpler.

Currency Exposure: The Basics

Currency exposure arises because the company's costs are in dollars while its customer, the distributor, earns in yen. Whoever invoices in the other's currency bears the exchange rate risk. If the company invoices in yen, it receives a fixed yen amount whose dollar value changes with the rate. If it invoices in dollars, the distributor pays a fixed dollar amount whose yen cost changes. Research on trade invoicing has found that the U.S. dollar is widely used to price international trade, even between countries that do not use it, and that the invoicing currency depends partly on the kind of goods and the bargaining position of the parties (Goldberg & Tille, 2008).

What a Ten Percent Move Does

Suppose the export price is set at the equivalent of $30 a case at an exchange rate of 150 yen to the dollar, or 4,500 yen. Under yen invoicing, if the yen weakens 10% to 165 per dollar, each 4,500-yen case is worth $27.27, and on 8,400 cases the company loses about $22,900 of expected revenue. If the yen strengthens to 135, each case is worth $33.33, a gain of about $28,000. Under dollar invoicing, the company always receives $30, but the distributor's cost per case swings between 4,050 and 4,950 yen, which could force it to raise shelf prices or reduce orders. Either way, someone bears the risk; the choice is who, and how much.

Economic Exposure

Even with dollar invoicing, the company is not insulated. If the yen weakens for a long period, Japanese shoppers will find U.S. maple more expensive than domestic sweets or Canadian maple priced in a currency that may move differently. This longer-term effect on competitiveness, called economic exposure, cannot be hedged with a contract; it can only be managed through pricing strategy, product mix and keeping costs under control.

Ways to Manage Currency Risk

Four tools are available. Invoicing currency: invoicing in dollars moves transaction risk to the distributor. Currency adjustment clause: the contract can set a band, for example 140 to 160 yen per dollar, within which prices stay fixed in dollars; outside the band, the price adjusts so that the two parties share the move equally. Forward contracts: if the company accepts yen invoices, it can sell expected yen receipts forward through its bank, locking in a rate for each shipment. Research on firms' use of currency derivatives has found that they are mainly used to reduce exposure rather than to speculate (Allayannis & Ofek, 2001). Pricing reviews: a scheduled review each year allows both parties to reset prices as rates and costs change.

Raising Currency Terms With the Distributor

Currency terms are part of a relationship as well as a contract. A new foreign supplier that insists on dollar invoicing with no flexibility may seem to be pushing all risk onto its partner, which is a poor start in a market where, as Module 1 noted, buyers often value long and trusting relationships. The shared-risk band is designed partly for that reason: it shows the company is willing to absorb part of a large move. The export coordinator will present the band in person during the planned visit, with a simple table showing what each party would pay at 135, 150 and 165 yen per dollar, and will invite the distributor to propose its own band if it prefers. Agreeing on the mechanism before any large move happens is far easier than negotiating after one party has already lost money.

Documents for Every Shipment

Trade compliance depends on routine. Each shipment will travel with a commercial invoice in dollars, a packing list, a bill of lading, a certificate of origin and the product specifications the importer needs for food import notification. The company will keep a copy of each shipment's label proofs approved by the distributor and record lot numbers and best-before dates, so that any question from Japanese authorities can be answered quickly. Building this checklist before the first container leaves avoids the delays and storage costs that a held shipment would bring.

Recommendation

I recommend invoicing in dollars with a currency adjustment clause that shares moves outside a 140-to-160 band, which protects the company's margin while showing the distributor good faith in a new relationship. If the distributor insists on yen invoicing, the company should accept it only for the first year and sell each shipment's yen forward when the order is confirmed, at a modest bank fee. On trade rules, the company will confirm tariff classification before pricing, prepare compliant Japanese labels with the distributor, start with pure syrup and maple sugar and keep a checklist for each shipment covering notification, labels, best-before dates and documents.

Conclusion

The first export contract exposes the company to trade rules, especially labeling and import notification, and to a moving yen. A 10% swing changes first-year revenue by more than $20,000 under yen invoicing. Dollar invoicing with a shared-risk band, forward contracts as a fallback, annual price reviews and a compliance checklist manage those exposures in proportion to the company's size. Module 4 turns from money to the supply chain and the stakeholders it affects.

References

Allayannis, G., & Ofek, E. (2001). Exchange rate exposure, hedging, and the use of foreign currency derivatives. Journal of International Money and Finance, 20(2), 273-296. https://doi.org/10.1016/S0261-5606(00)00050-4

Goldberg, L. S., & Tille, C. (2008). Vehicle currency use in international trade. Journal of International Economics, 76(2), 177-192. https://doi.org/10.1016/j.jinteco.2008.07.001

Santeramo, F. G., & Lamonaca, E. (2019). The effects of non-tariff measures on agri-food trade: A review and meta-analysis of empirical evidence. Journal of Agricultural Economics, 70(3), 595-617. https://doi.org/10.1111/1477-9552.12316