As a follow-up to our previous Supply Chain Matters alert posting to multi-industry supply chain teams, President Donald Trump indicated this afternoon that the United States is planning to levy tariffs on about $60 billion of designated imports from China, as well as impose restrictions on technology transfers to pressure China to curtail what the U.S. considers unfair trading and investment practices. 
Declaring that trade practices with China are “out of control” the President formally invoked what is termed as a Section 301 Trade Action. The $60 billion of tariffs on U.S. imports represents upwards of 10 percent of the trade imbalance while investment restrictions, characterized as primarily technology industry related, are expected to impact upwards of 200 product categories. The President further characterized today’s actions as the “first of many subsequent actions” and stressed the word “reciprocal” as the key tenet to his Administration’s trade policy.
The specific listing of products to be impacted is expected to be released in 30 days while U.S. business interests will be provided 15 days to comment on which products should be included in the tariffs. According to reports, the U.S. Trade Representative has selected upwards of 1300 product categories that might be included in the new tariffs., many described as high-tech in nature.
Further indicated was that the United States is expected to bring a case before the World Trade Organization (WTO) arguing that China, through its business practices, is favoring domestic firms when it comes to licensing technologies.
News of this afternoon’s announcement has fueled a major market sell-off on the Dow, trending down 2 percent as we pen this posting, over investor fears of a major global trade war.
China is expected to counter today’s announcement with its own trade actions, yet to be defined.
As stated in our prior posting, today’s actions by the Trump Administration should strike immediate alarm bells for technology and other 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.
Bob Ferrari
© Copyright 2018. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Hello to All Readers,
Chinese leaders were quick to respond to the Trump Administration’s announcement of trade actions and tariffs. China’s Commerce Ministry cited the Trump Administration’s Section 301 measures as “unilateral protectionism” and reiterated that “the Chinese side hopes not to fight a trade war, but is definitely not afraid of fighting one.”
The Commerce Ministry identified $3 billion in targeted U. S. goods including the imposition of 15 percent tariffs on imported fruit, nuts, wine and seamless steel pipes. A second round of 25 percent tariffs is proposed on pork and recycled aluminum.
These measures were identified as retaliation for the Trump Administration’s prior imposition of tariffs on steel and aluminum.
The action was accompanied by statements indicating that the U.S. “was “setting a vile precedent” and warning that China was prepared to defend its interests. The Chinese Ambassador to the United States indicated: “If somebody imposes a trade war on China, we’ll fight to the end.”
Missing from today’s actions and statements are the big-dollar exports that the U.S. sends to China such as commercial aircraft, soybeans, sorghum and other products.
This is being interpreted by industry observers and economists to mean that Chinese officials, despite public statements, are leaving room to either negotiate or escalate in trade actions. Further indications from various observers is that China is well prepared in its game plan and will play out its ultimate responses as the new announced U.S. trade actions become identified and initiated over the coming weeks or months. As noted in our posting, specific actions are not expected to occur for a month as U.S. Commerce and trade officials compile the formal list of proposed U.S. tariffs on imports from China.
There is little doubt that over the next few months, a lot of trade developments will continue to occur. Once again, industry supply chains need to be prepared with short and longer-term analysis and plans as to business impacts and contingency plans.
News of this week’s actions, coupled with an announcement of the appointment of a new, more hawkish U.S. Security Advisor prompted the major U.S. stock market indices to post their largest weekly losses since January 2016.
Bob Ferrari