The Trump Administration has elected to move ahead with prior announced tariffs affecting select goods imported from China into the United States, representing yet another significant development in the volatile global trade landscape.
The dye is now cast and there is little question that multi-industry supply chain teams are now facing one of the most difficult and challenging business support environments. Supply Chain Matters provides additional insights on impacts and action planning.
Today’s directive imposes a 25 percent tariff on up to $50 billion in Chinese produced products. Reports point to the United States initially imposing a set of tariffs on 818 items worth about $34 billion on July 6, with separate measures affecting 284 products worth about $16 billion could take effect following a review and public comment process.
In a corresponding statement released today, the President indicated that the measures will affect Chinese goods “that contain industrially significant technologies.” The action comes “in light of China’s theft of intellectual property and technology and its other unfair trade practices,” he added.
By many accounts, today’s action is sure to provoke counter tariff announcements from China targeting specific U.S. imports to that country.
Implications to Industry and Global Supply Chains
Obviously, these series of global trade actions are evoking lots of political discourse and opinion, and this blog platform must attempt to maintain an objective lens. That lens will be on our view on global and industry specific supply chain impacts, and how teams should be positioned at this point.
What we know at this point:
The Trump Administration has now undertaken aggressive and simultaneous tariff actions involving three major economic and trade markets, NAFTA, the Eurozone countries, and China. As a recent New York Times editorial noted, initiating, and managing the effects and associated trade war risks of such tariff actions is a big deal for any one of these major trading regions, initiating such actions simultaneously involving all three, is unchartered. Regional and global PMI indices reflecting manufacturing and supply chain activity levels now point to mostly higher input material prices with growing uncertainties related to global trade conflicts.
This week, business network CNBC observed that U.S. trade relations appeared to be hitting rock-bottom ahead of today’s China directed actions, and that the prospects for renewing the NAFTA trade agreement are waning rather quickly. The President’s Trade Advisor’s public slander of Canadian Prime Minister Justin Trudeau, which subsequently resulted in a public apology by that official, has soured the NAFTA and G-7 group of nations landscape.
As we have opined in prior blog commentary, most all of these trade actions have politically-focused actions. In the case of NAFTA, it is the Trump Administration making good on a campaign promise to get a better deal for the U.S. For the steel and aluminum tariffs, to appeal to Trump’s rust-belt political supporters. For China, to blunt that country’s policies in not respecting corporate intellectual property protections in a strategic plan that has a five-year goal to dominate advanced technology enabled markets. The keyword is “political” and the meaning is that tariffs are likely specifically targeted at voter and industry constituencies. Thus, if your organization, company, or industry is in areas such as agriculture, automotive, aerospace, industrial, high tech, or others, then the likelihood of a supply or product demand chain related impact is rather significant. The other notion to consider is that “political” can likely imply high uncertainty as to where these events lead.
Impacts and Action Planning
Already, evidence is mounting that businesses are attempting to pass-along the added costs of materials and components in higher prices. For some industries such as agriculture, food and retail, such price threats are meeting end-customer resistance. The implication is that in such cases, supply chain teams, along with other business teams such as IT, will likely be mandated to reduce costs in other areas. If you reside in a small or medium business, you lack the leverage or the market influence to be able to pass along added costs. All businesses must be prepared with contingency supply chain response plans, including preserving important strategic investment areas such as future digitally-based process support capabilities.
Global supply chain landscapes were already strained in the past two quarters in areas such as restricted capacity, higher input costs driven by currency fluctuations, and concerns about specific supply chain regions. We observed data that would indicate that businesses were already changing materials and finished goods strategies, for instance, moving production away from China in favor of other lower-cost, or less risk areas such as Vietnam. At this point, attempting to make new strategic sourcing decisions is fraught with unknowns. Supply contracts and business partnerships remain important and cannot be changed at the push of a button. Thus, teams need to be thinking and acting in provisional sourcing moves, trying to avoid longer-term contract commitments. That, admittedly, is going to be difficult given the current global supply landscape and the notions of specific trade wars becoming more than just news hype. Constant, frequent, and trusted communications with suppliers is our watchword. All parties are in the same uncertain environment and information sharing is doubly important.
A final thought relates to protection of key talent. An often-knee-jerk business response is to shed headcount when bottom-line business performance objectives and management bonuses are in peril. The business world now exists for the most part, in a short-term performance window.
One of repeated lessons learned during difficult times is the loss of key talent, and then having to restore that talent either internally or externally. Global business activity levels in the U.S. and other regions remain very robust, reaching near full employment levels. In the U.S., the unemployment level has reached an 18-year low of 3.8 percent. Your experienced employees now know their value, and this is a period that will test their value. Protect them as best and as quickly as you can. You will need their skills, added commitment and passion to support business needs in a challenging global business and supply chain environment.
All the advanced technology now available today to support more adaptive, more informed, and a more resilient supply chain lacks credence without the skills and people required to leverage such capabilities.
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