Supply Chain Matters points out yet another significant development in global trade that contributes to ever more growing uncertainties for global supply networks.

At midnight tonight, the Trump Administration, indicating that it was unable to win desired concessions, will impose planned 25 percent import tariffs on steel and 10 percent tariff on aluminum imports,  that were originally announced in March. The tariffs concern imports from Canada, the European Union and Mexico, all of which are close trading partners. Import quotas will also be imposed on other countries.Global Trade

The original basis of such tariffs were predicated on national security concerns.

The European Commission immediately responded to this development in a Twitter posting indicating that the: “EU is of the belief that such unilateral tariffs are unjustified and at odds with World Trade Organization rules. This is protectionism, pure and simple.” In a subsequent press release, the Commission noted: “The US now leaves us with no choice but to proceed with a WTO dispute settlement case and with the imposition of additional duties on a number of imports from the US. We will defend the Union’s interests, in full compliance with international trade law.”

The Trump Administration has further ordered a review of imported vehicles and auto parts under Section 232 of the Trade Expansion Act, the same national security measure used to impose steel and aluminum tariffs.

This development occurs as U.S. trade negotiators are about to sit down again with Chinese trade officials this weekend to attempt to resolve a listing of $50 billion in Chinese goods subject to proposed 25 percent tariffs. There is already strong language relative to expected concessions, and the outcome of these talks are very uncertain.  We previously noted that the June 1 deadline for talks related to the modernization of NAFTA looks very doubtful for resolution in 2018, particularly in the light of today’s trade development.

Three Important Trends to Watch

Three threads are becoming ever more apparent regarding current U.S. trade actions and their potential impact.

The first is a reported internal rift in ongoing Trump Administration actions on trade policies. The rift appears to be present among Treasury, Commerce and U.S. Trade Representative teams. It would seem that Treasury is concerned with the overall impacts on the U.S. economy and individual  businesses, while Commerce and Trade officials continue to take a hawkish and aggressive view toward trade negotiations and actions.  This rift became visible in prior trade talks that occurred in China with reports indicating each faction shouting with the other behind closed-doors. Thus far, the Commerce and Trade Representative faction seems to have the ear of the President.

The second is the obvert political tones that U.S. trade actions have taken thus far. Efforts seem to be directed towards protecting Trump voter coalitions, such as Midwest farmers and auto workers, with the U.S. mid-term Congressional election cycle looming. Likewise, China’s response strategies seem targeted at the same voter groups with proposed agricultural and machinery tariffs.  The notions that such trade actions are being undertaken to protect U.S. national security interests is becoming veil. Concerns are growing relative to usurping the role of the U.S. Congress in areas of taxation and tariff policies.

In somewhat of a bizarre twist, the highly conservative and politically influential Koch brothers indicated to business network CNBC today that the current Trump Administration’s actions are detrimental to global trade and the U.S. economy and should be abandoned. U.S. Commerce Secretary Wilbur Ross continues to indicate that the steel and aluminum tariffs amount to a fraction of one percent on manufacturing product costs. Such a statement is contested by some U.S. manufacturers.

The third is the ongoing shock being expressed by global manufacturers themselves, which include Daimler, BMW, Toyota, and others. These are companies that have elected to source significant manufacturing resources domestically and in the United States as elements of a global supply network and manufacturing strategy. Now, a veil of high uncertainty is building as to where the ongoing trade threats and tariff actions related to current and future trade policy ends up.

Implications for Industry Supply Chains

The implications for industry supply chains appear fairly obvious at this point.

The worst-case scenarios regarding a period of new global trade barriers and added landed cost factors are becoming ever more evident with each passing day and each passing week. The threat is likely equally balanced for U.S. and global manufacturers and retailers. The notions of supply chain flexibility and resiliency has realistic new meaning.

Already, manufacturers have undertaken alternative sourcing and manufacturing strategies that include pre-assembled kits of products for export or alternative supplier sourcing.

The Trump doctrine of trade negotiations seems grounded in threats and extremes, lately bordering on shock. The question remains as to whether other countries will blink, attempt to compromise, or escalate actions to ever more retaliatory actions.

The reality of globally-based supply networks supporting global and regional markets is sometimes subsumed by a politically-driven set of events. The same forces that led to the creation of globally extended supply networks can also threaten their existence. The implications for enterprises large and small are significant.

Let us all hope that rational minds prevail.

 

 

Bob Ferrari

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