On the global trade front, a groundswell of current reports now indicate that the Trump Administration is seeking to impose tariffs on upwards of $30-$60 billion of Chinese imports, primarily targeting information technology, consumer electronics and telecommunications sectors.
Such actions are reportedly a response to building evidence that current Chinese investment policies effectively force U.S. companies to compromise intellectual property protections in exchange for being allowed to market and sell products with China or with Chinese-based business partners. The report is expected to conclude that IP theft has cost U.S. companies significant sums of money.
According to reporting by The Wall Street Journal, U.S. business groups, while uneasy about triggering a trade war with China, have increasingly pressed the Administration to take actions on China’s industrial policies related to market access restrictions and the “Made in China 2025” plan which aims to supplant foreign advanced technology with domestic capabilities in key strategic high-growth industries such as semiconductor chips, alternative energy, telecommunications and other sectors.
Reports by other business media and the WSJ, indicate that such China specific tariff actions, directed at upwards of 100 products, could come as early as this week or possibly next week. Such a potential move comes after the imposing of controversial tariffs on steel and aluminum imported into the United States.
The threat is so significant that according to the WSJ, 45 different industry trade associations are now actively petitioning or lobbying the Trump Administration to put the brakes on such actions, and instead focus with like-minded industry partners to specifically address intellectual property and technology protection concerns. Such actions could involve bringing a formal case before the World Trade organization (WTO), alleging a violation of trade rules, and providing a means to build a coalition of nations to place broader pressures on China’s alleged IP protection abuses.
There exists little doubt that such a broad tariff action will likely prompt counter tariff actions by China on goods imported into that country. Likely areas could be agricultural products such as soybeans, which represent over half of U.S. agricultural exports, meat products, commercial aircraft or even smartphones produced by U.S. manufacturers.
Actions to Consider
Needless to state, such added tariff actions should strike immediate alarm bells for technology and other industry supply chains.
When the first aspects of U.S. corporate tax reform were being floated in 2016 and early 2017, there was consideration by the U.S. Congress of a value-added tax on imports, particularly imports specifically from China. Supply Chain Matters sounded an initial alarm on such actions since they posed a direct impact on U.S. manufacturing costs and product value-chain strategies. Such import tax proposals were eventually scrapped because of business and political implications to the economy and to industry supply chains.
If the now more widely speculated new tariffs are imposed on Chinese imports, depending on the eventual degree and scope of such tariffs, there could well be equivalent impacts for manufacturers, retailers, and agricultural interests in terms of supply chain cost, economic and market impacts.
The Trump Administration is showing very clear signs of turning more trade protectionist, and in taking stands of extreme assertiveness. The implications are significant for industry supply chains.
Product and market sourcing as well as contingency planning scenarios and actions should now be a very important consideration for contingency planning among line-of business and industry supply chain leadership teams. Now is the time to be prepared for assessing alternative sourcing scenario and determining how much added supply chain costs can be adsorbed or passed along to customers.
Industry supply chains are likely to experience a period of terribly disruptive trade actions resulting in added risks and market volatility. Be prepared and diligent in providing senior management with needed information to make the most informed and timely decisions related to global product and supply chain support strategies in the coming weeks.
© Copyright 2018. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.