Impact of Trump’s Trade War on Supply Chains World Wide
With the Trump administration rolling out its new tariff policy, we’re beginning to see the effects on the market. By the end of March, the U.S. stock market fell a staggering 700 points in a single day with the announcement of the tariffs. This has continued through the market inciting a high degree of volatility and uncertainty as tariffs continue to roll out. U.S. trading partners, China, Canada, Europe, India, and Mexico are all forming plans to retaliate. China, for example, has begun to increase scrutiny on U.S. imports and have begun to crack down even harder on customs infractions, both of which can cause considerable delays for U.S. based shipping companies exporting goods to China.
While these have wreaked havoc on the U.S. stock market, it hasn’t had any marked effects on the global marketplace. This can largely be attributed to the fact that U.S. trade partners aren’t able to do much more than issue threats and other potential sanctions to penalize the United States. This is thanks to the World Trade Organization, which tightly restricts what countries can and cannot do when it comes to trade which lends a certain degree of predictability to the global economy.
What does this mean for the supply chain? Although, there is a degree of stability and predictability thanks to the WTO, with trade being taxed and charged due to the tariffs, there’s undoubtedly going to be a backlash on the global supply chain. Here’s what we can expect.
The Downside to Lean Manufacturing
Part of what many organizations have been gearing their supply chains towards is running lean. With companies running with less stock, timely and predictable deliveries are essential to keeping business moving smoothly. With the new tariffs in place, however, many companies are going to have to look into new sources of materials and components which will be a time consuming, costly, and to a certain degree, a risky endeavor at the best of times.
If China and the United States do break out into an all-out trade war, many companies are going to feel the sting as they should decide whether to eat the higher production costs or try to find and vet a new supplier. Companies should start hedging their bets and making plans to deal with drastic changes to their suppliers and supply chain as a whole.
“With risk management in the supply chain, you have to be proactive. This isn’t something anymore in which you can sit around and think ‘when it happens we will sort it out’,” says Richard Wilding, professor of supply chain strategy at Cranfield School of Management.
The Back and Forth of Battle
Many trade experts are nervous about the new tariffs as they could lead to a growing cycle of retaliation. The harder the U.S. pushes, the harder China will push back.
“They raise the already high risk of new US tariffs on Chinese imports, almost certainly to be quickly followed by a carefully targeted Chinese response,” says economist Mary Lovely of the Peterson Institute for International Economics.
However, these new trade policies aren’t singling out China specifically, but are aimed across the board. A 50 percent markup on imported washing machines, for example, will mostly affect South Korean Exporters. While we’ve seen similar measures from the Bush Administration targeting steel specifically, it didn’t incite a trade war. With broader tariffs targeting a number of exporters across the world, we might see a different result.
So as countries are going back and forth with parries and ripostes, how prepared are the businesses and exporters that will be caught in the middle? According to Professor Wilding, “Companies that have been impacted will take this seriously, but most organizations are quite dormant.”
“Companies must know where their suppliers and their suppliers’ suppliers are, he says, so they can anticipate disruption and arrange backup supplies. They need to be agile to design products in a way that avoids dependence on sole suppliers and to collaborate with partners such as logistics companies,” according to Raconteur.
“Overlaying all this, you need continuous monitoring and intelligence. If you hear that a trade war has started between two countries, you can see which suppliers could be impacted,” Wilding adds.
According to a Survey conducted by the Business Continuity Institute, 69 percent of companies simply don’t have the visibility in place to monitor suppliers and the supply chain appropriately. While they’ve been getting the ball rolling over the past few years, many companies aren’t there yet.
What Should Companies be Doing to Protect Themselves?
This is the big question being asked. Even if we don’t see an all-out trade war come to fruition, having plans in place to deal with such an event is just good business practice. Obviously, visibility is important, as it makes the difference between having a supply chain and understanding how best to mitigate risks.
Digitalized supply chains and online freight forwarders will definitely be proving their worth in the coming days as manufacturers and businesses are scrambling to keep the supply chain rolling.
