Supply Chain Matters is once again compelled to provide a follow-up commentary related to global trade developments, specifically to the Trump Administration’s ongoing Make America Great mantra of aggressive trade actions that are rattling markets and adding to building uncertainty. In our last commentary earlier this month, we advised industry supply chain teams of the need for constant monitoring of events, yet we can attest to how challenging that can be given the pace of developments that are now occurring. Events continue to unfold daily, and markets and industries are becoming more concerned.
Whereas previous announcements from President Trump related to imposing additional tariffs on China and other nations have caused major stock market selloffs, yesterday, an address by Chinese President Xi Jinping has caused today’s stock market activity to be a bull rally.
Yesterday, China filed a formal complaint with the World Trade Organization (WTO) challenging recently announced U.S. tariffs on imported steel and aluminum. The action invokes 60 days of consultations with the United States, and without progress, could invoke a ruling from the WTO. Simultaneously, President Xi delivered an address to the annual Boao Forum for Asia that indicated that China has a genuine desire to increase imports and achieve a greater balance in international payments. Painted was a picture of China as a benevolent leader of the global economy, stressing that free trade and opens systems are the best course of action. Further stated: “We encourage normal technological exchanges and cooperation between Chinese and foreign enterprises and protect the lawful (intellectual property) owned by foreign enterprises in China.” Without citing any specific country, the Chinese President urged nations from seeking dominance or acting out a zero-sum game in trade negotiations.
The market has interpreted such remarks as an indication that China may be attempting to tone down escalating trade disputes. That remains to be seen as the process moves on.
What is becoming clearer with each day is that behind the scenes, political and industry lobbying forces are becoming far more vocal. U.S. Manufacturers are increasingly concerned that tariffs will either undermine a current optimistic business climate or economically disadvantage their current products and supply chain input and output flows. President Trump himself has acknowledged that the U.S. agriculture may feel some initial pain with tariff blowbacks, but the end-goal will be a stronger global trade presence for U.S. businesses.
According to a recent report by The Wall Street Journal, some worry that that trade friction will get out of control. Some also worry about the possibilities of a global economic downturn down the road as a result of cascading and counter -productive trade actions. Some are bold enough to exclaim that the Trump Administration has no sense of the end-game result, and that other nations have become far more savvy in playing out the political ramifications of trade actions.
In more stark words, the political and special-interest lobbying process is now subsuming the formal negotiations process which implies that the end-goal becomes far more clouded and that there will be winners and losers when all the dust settles.
NAFTA Negotiations
New evidence of the above is demonstrated with current reports that the ongoing NAFTA negotiations may be moving quicker toward resolution. This week, published reports by the WSJ and global business network CNBC both indicate that each of the major individual high-level trade negotiators met in Washington last week and agreed to move toward what is described as permanent talks to work toward a quicker resolution of the trade pact. Mexico’s trade minister is cited in a report as indicating that high-level agreement could be reached in the early May timeframe. 
The motivation is described as growing pressure from U.S. lawmakers and influential industry groups which are signs that lawmakers are signaling that they may be more willing to reign-in current trade negotiations.
An editorial column in today’s WSJ specifically takes U.S. Trade Representative Robert Lighthizer to-task for insisting on the elimination of NAFTA’s “investor-state dispute settlement” mechanism. More than 100 legislators have co-signed a letter indicating non-support of such insistence, while U.S. business groups are reportedly quietly threatening to oppose a renegotiated NAFTA if the U.S. Trade Representative does not moderate the current U.S. negotiating position.
Implications
As the stakes grow higher, and the public posturing becomes far more concerning to multiple nations, behind the scenes influencer and lobbying voices will likely attempt to steer ongoing trade actions to some form of consensus. But with the dizzying array of day-to-day actions and different voices from the Trump Administration, where all of such actions end-up is subject to continued speculation and actual events.
A politically-driven process has multiple end-point scenarios, where stakeholders with the deepest pockets and business interests attempt to steer the end-result. At the same time, the reality of a global economy with global and domestic special interests will steer events as-well.
For industry supply chains, the watch word remains detailed analysis and contingency planning regarding supply chain product and material flows. Procurement and supply management teams are squarely in the spotlight. That would include continual advisories for senior management as to various implications of tariffs on business outcome goals. That has special meaning for mid-market manufacturers, retailers, and services providers. Lacking the voice, influence and financial resources of large global-based firms, smaller firms must rely on industry and regional associations as their voice of concern.
Bob Ferrari
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