Developments related to the Trump Administration’s aggressive tariff agenda continue to move at a blistering pace. Since our last Supply Chain Matters update commentary published last Friday, President Trump has now moved on to propose 10 percent tariffs on an additional $200 billion in China related imports, with the possibility of as much as $400 billion in tariffs if China elects to retaliate in counter tariffs.
As business and investment interests are now beginning to grasp, the escalation in these tariff actions are more than just a threatened trade war. With each subsequent round, impacts to lower-tier materials among multi-industry supply chains, such as steel and aluminum, now threaten to impact the upper tiers, including actual finished products among multiple industries. While businesses must manage the impacts of the initial rounds, with increasing occurrences, the direct consumer becomes impacted, and this the demand chain for products becomes impacted.
As The Wall Street Journal observed this week: “.. it is likely impossible to construct a list of $200 billion in extra items for tariffs without hitting major categories of consumer goods.”
Businesses are now concerned that supply chains related to automobiles, computers, smartphones, televisions, as well as many electronic or consumer electronics will become impacted in various supply or demand dimensions. While some businesses can adsorb 10 percent cost increases, especially under the umbrella of recent U.S. corporate tax reform savings, others cannot, especially smaller sized businesses.
As we pointed out in prior blogs, this is also somewhat of a politically motivated process which implies that selective targeting of market segments is at-play. Thus, many forms of agricultural productions have felt the initial impact, and more than likely, automobiles, computers and smartphones may be the next targeted segment.
We have already viewed one report from an investment-oriented blog speculating that Apple will face a big risk if the China trade war escalates. The commentary cites a report that Apple CEO Tim Cook received assurances from the President that iPhones made in China will not be on the tariff list. Of course, there are possibly little assurances that China will not elect to slap a tariff on inbound iPhone supply chain components exported from the U.S. for assembly in China.
Today, business network CNBC published a report highlighting a recent CFO poll. The headline was: Trump’s trade war will soon hit 65 percent of global business leaders: CNBC Survey. According to the report, seven of the 16 biggest Dow declines this year appear to have been sparked by trade concerns, shaving $700 billion in market caps. Further reported is that the latest CNBC Global CFO Council quarterly survey indicates that U.S. trade policy has been identified as the biggest external risk among 35 percent of the CFO respondents. That number was previously 27 percent in the Q1 polling. Of perhaps more interest, 65 percent of Asia-Pacific based CFO’s expect a negative impact on their firms.
Again, to our prior advisories to industry supply chain leaders and their respective teams, if you have not as-yet had to directly respond to supply chain related impacts inquiries from your CFO, chances are good that you will. Be adequately prepared. The good news, you have the opportunity to be on a daily first-name basis with some C-Suite executives.
With the current news headline cycle literally at a dizzying pace related to daily political, business as well as trade-related events, there is a tendency to want to just tune-out. That is to be expected. Unfortunately, multi-industry supply chain teams have little choice but to stay abreast of trade developments, simply because they are moving along in a blistering pace of back and forth developments.
Where this all ends-up is subject to a lot of speculation. But the reality is that supply chain leaders and their teams will be called upon to deal with the impacts or residuals.
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