It has taken this analyst over a day to recover from the shock and outcome of the recently completed U.S. Presidential election. Front page newspaper and online media headlines across the globe reflect such unprecedented shock and surprise. Today’s primary headline from The Wall Street Journal declared: A New Political Order.

Supply Chain Matters has become a well-recognized blog providing insights and observations directed at the broad umbrella of what has become supply chain management today. Our perspective is global in nature, not just the United States. Thus, it is probably no secret that this week’s stunning election result has global as well as domestic supply chain management implications for many months to come.

President Elect Trump won the election echoing populist views that favored building frustrations of the everyday workers who remain fearful of the growing tide of globalization. They are perhaps the workers employed, or previously employed in your manufacturing or supply chain operations areas that have had their economic livelihood impacted by various cost-cutting or other business moves.

Populist sentiments fueled Great Brittan’s referendum results to favor exiting the European Union, which was the prior shock heard around the world. There again, populist sentiment was in protection of jobs, a rising tide of immigration and in the burdens of government taxation.  Already there is speculation that the populist movement will perhaps impact pending important elections across Europe that are scheduled to occur througout 2017.

However each of us voted, the United States will plan for a peaceful and successful transfer of power. Similarly, U.K. political leaders and institutions will plan for a formal two year exit plan from the European Union.

In this initial viewpoint commentary, we can only touch the surface since so many uncertainties come to mind and a Trump administration is yet to govern and lead the United States. Thus, our first of surely many commentaries to come will focus on helping our readers and clients to begin to think about and context such implications.  At this point, supply chain leaders can only assess the potential scenarios and remain prepared to brief the C-Suite on how the overall supply chain is prepared to deal with such implications.

Let’s therefore dwell upon some important areas.

 

Upcoming Holiday Fulfillment Surge

The most immediate impact is potentially the upcoming holiday fulfillment period. Most retail industry demand for the past two years has been fueled by a positive consumer sentiment. The open question is whether the shock and fear resulting from the U.S. election and other global political concerns spills over to holiday buying sentiments, particularly discretionary type goods such as clothing, jewelry or high fashion. Early product demand sensing will perhaps be a key determinant of any impact.

 

Trade Policy

President Elect Trump was rather vocal and direct regarding current U.S. trade policies involving North America and other global countries. He called for re-negotiation of the North America Free Trade Agreement (NAFTA) and the refusal to ratify the proposed Trans Pacific Partnership (TPP) agreement. There was open admonishment of currency and trade policy related to China with a threat to pose significant tariffs on Chinese manufacturing goods being shipped to the United States.

When the political realities set-in, the campaign rhetoric will likely focus on actions related to both China and NAFTA, but to what degree remains to be seen and assessed. The President Elect was not shy in calling out specific manufacturers such as Ford and Apple on their manufacturing investment strategies and lost U.S. jobs going to China and Mexico. Similarly, online buying and commerce has generally been allowed a free and open access to global markets. Global trade shocks could well spillover to online providers such as Amazon’s access to sell in certain overseas global markets.

For most multi-industry supply chains, it is likely a wait and see perspective at this point. For supply chains that currently have a high-profile sourcing dependency within China itself, there should be consideration for business impact. However, for those that have a stronger sourcing presence in Vietnam and other Asian countries, failure of the United States to support TPP has from our lens, trade and intellectual property protection implications. Like it or not, China today has garnered enormous power to influence basic commodity pricing which is another reality that must be balanced with sudden policy moves.

The obvious industry impacted by a harder currency and trade line with China is high tech and consumer electronics. A further industry is apparel and footwear. The high-tech supply chain with considerable China exposure is that of Apple. However, Apple is not alone from an overall high-tech perspective since the bulk of the industry’s component and final assembly value-chain originates in China. Clothing and sporting goods manufacturers have already moved some sourcing to other low-wage countries but high-margin and high-fashion goods remain likely sourced within China.

The commercial aerospace industry has a potential impact from a product demand perspective because so many of current booked orders involve China’s air carriers, reflecting explosive long-term demand for increased air travel across China. Retaliation to increased U.S. or even European tariffs could result in a demand focused backlash. Also from a demand perspective, a harder U.S. line on currency and trade policy has an obvious impact on global transportation carriers, and ocean container shipping lines that are already struggling with lower demand and significant excess capacity.

A hard line on shipping jobs to Mexico and the threat to build a wall on the U.S. border with Mexico has a potential impact on automotive manufacturers who have made significant strategic production sourcing bets for Mexico to serve as a major manufacturing hub for smaller and mid-sized vehicles serving North American and other geographical consumption markets. The President Elect threatened a 35 percent tariff on cars imported from the country and a backlash on borders could spill over to free movement of goods.

Overall, we might foresee a resurgence towards more accelerated near-shoring sourcing strategies to serve domestic product demand.

 

Environmental Policy and Climate Change

A Trump Administration is not likely to actively support global climate change initiatives and there is already speculation that U.S. policies related to clean and alternative energy buying and development incentives or electric car purchases will be quickly rolled-back. Campaign rhetoric shunned scientific climate change evidence and included the cancelling of large payments to United Nations sponsored climate change initiatives. Further speculation points to lifting existing restrictions related to oil pipeline construction from the Bakken region, adding a further long-term demand blow to North American railroads. However, to appease coal country voters, the lifting restrictions on coal use would be a commodity movement offset for railroads.

We tend to agree with others including Kevin O’Mara of SCM World that it may be just a matter of time before a Trump administration withdraws support for the Paris climate change initiatives which will serve as a big disappointment to current signors, and could result in added backlashes directed at U.S. produced goods.

This author has already openly stated that a sustainably focused supply chain strategy should serve as the component of a broader overall sustainable business strategy. Current sustainably focused initiatives could well be sidelined by ongoing political events.

 

Global Economic and Consequent Supply Chain Strategy Trends

The entire Trump Presidential campaign was predicated on shock and bold statements related to the United States being far more aggressive in world markets.  Hopefully, such statements will moderate with the realities that U.S. based businesses need to continue to benefit from access to such global markets. Already, corporate CEO’s from Boeing, General Electric, Procter and Gamble and United Technologies who each have a major stake in sustaining global business expansion have reached out to the President Elect seeking to promote what was described as “healing and reconciliation.”

Mr. Trump promised a new tax policy that reduces overall corporate tax rates and will likely allow corporation to move accumulating overseas profits back to the U.S. or elsewhere without substantial tax consequences. The re-patriating of overseas profits triggers the potential risk of other nations seeking more of their fair share of taxation from overseas based corporations, as demonstrated by the European Union’s latest efforts to collect hundreds of millions in added taxes from Apple that were sheltered by Irish tax shelter laws. More local based taxation implies added supply chain movements for inventory and production declarations.

All of the above may well provide an incentive for more near-shoring or increased investments in U.S. and major geographical hub based supply chain capabilities.

However, the largest risk is additional shocks to the overall global economy which is already struggling to bounce back from the prior financial meltdown led global recession. With the threat of more populist sentiments, additional political shocks within other countries such as in Europe, or a complete loss of confidence in global financial structures and currency values, anything can happen.

 

Technology and IP Protection

A nationalist agenda within the U.S. can well trigger prohibited access to advanced technology across the globe or to local intellectual property provisions that require more sharing and less protections of trade secrets. Certain technologies could be banned, or certain products could be subject to added securitization by regulatory and domestic product safety agencies. This is likely an area of greatest strategic risk and businesses have already experienced such effects in China. A chilling or clash of trade policy among the U.S. and certain other large countries can trigger many ancillary effects.  Access to technical talent or IP residing in non U.S. countries could well be even more restricted or shutout all together. Likewise, access of U.S. citizens possessing critical technology skills could be banned from entering other countries without agreeing to waive intellectual property or trade secret disclosure.

We certainly trust that cooler discourse will ultimately prevail but for now, supply chain teams need to think about any of the above implications and their impacts on current supply chain sourcing and distribution strategy.

Indeed, we are all about to enter a new phase of uncharted global uncertainty with added shocks to come.

Bob Ferrari

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