In the United States and in China, businesses, supply chain management teams and indeed investors are nervously awaiting details of what may turn out to be a “Phase One” trade deal among the two nations. An expectation for an agreement being reached during this month, appears by some reports, to be more likely in mid-December. This is prior to the next scheduled round of punitive U.S. import tariffs scheduled to take affect on December 15. In fact, there was speculation as to whether a rollback of both existing and the planned December 15 tariffs may be a part of the final phase one agreement.
However, there is another dimension of this backdrop, one that does not seem to have gained wide U.S. visibility. That dimension is a period of continued trade tensions and consequent customer demand and supply network implications.
Last Week, The World Trade Organization (WTO) authorized China to impose $3.6 billion in tariffs on U.S. imports, after a “countermeasures” ruling that prior U.S. duties on Chinese produced steel and other products were illegally inflated. China initially filed this case relative to the U.S. in 2013, with the initial panel ruling occurring in 2016, and a final ruling by an appellate body in 2017.
As the Financial Times noted in its reporting of this development, while this amount of tariffs is modest in comparison to the current levies that each country has imposed on respective imports, it is symbolic in that it represents the first instance where China has been officially authorized by the WTO, an international body, to impose retaliatory tariffs on the U.S..
This development additionally strikes at the heart of the Trump Administration’s acute dissatisfaction with the WTO, in both overall process, perceived overreach, and slow timing of particular rulings.
A further ongoing development concerns counter filings by both the United States and the Eurozone concerning perceived direct government subsidies being granted to each country’s dominant commercial aircraft manufacturers.
In early October the WTO authorized the U.S. to impose tariffs on $7.5 billion in Eurozone imports after ruling that European countries granted illegal direct subsidies to Airbus. In turn, on October 18, the Trump Administration imposed a 10 percent tariff on aircraft imported from Europe and a 25 percent import tax on select agricultural and industrial items also imported from Europe. The list of goods primarily targets imports from France, Germany, Spain and the United Kingdom, which are the four countries cited for Airbus subsidies. EU trade officials were in-turn, considering countermeasures, but preferred a negotiated settlement.
It does not end there in that the WTO has already found Boeing received billions of dollars of illegal subsidies in a case dating back to 2005. The WTO is expected to rule later this year on allowing the EU to impose its own retaliatory tariffs on US imports.
Thus, are the built-in escalations of trade wars, that literally elongate in multi-year horizons and fuel ongoing trade tensions and forces of protectionism.
Of late, conflicts have involved specific nations, the US and China, Japan and South Korea, the United Kingdom and EU in the notions of Brexit. Each escalation subsequently impacts multiple industry customer demand and supply networks, whether directly or indirectly involved.
The WTO, with an original goal of serving as a global trade arbitrator agency is increasingly looked upon as either non-effective, too slow or politically motivated. The fall back has been a series of regional trade agreements with complex names such as CPTPP– Comprehensive and Progressive Agreement for Trans-Pacific Partnership, RCEP– Regional Comprehensive Economic Partnership, USMCA- Unites States, Mexico and Canada Agreement, and likely others if Brexit occurs. The sum total is a cumulative restriction to global-wide markets and supply networks as well as added cost burdens for industry supply chains that are not positioned to take advantage of such structures. Such developments take a toll on small and mid-sized businesses not having the resources and bandwidth to stay abreast of such developments.
Our takeaway is that industry supply chain management teams, particularly CPO’s and supply management managers have no choice but to constantly stay focused on broader global trade developments along with their strategic and tactical implications.
It is no wonder that continual surveys point to increased supply chain complexities having to be continually managed. They further point to increased attractiveness in the outsourcing of strategic procurement strategy needs to specialists having the knowledge and regional-wide depth to be able to navigate such landscapes. It should further be of no surprise that trade and tariff specialists are in very high demand.
Some form of Phase One agreement in the ongoing U.S. and China trade war is not a panacea for returning to a notion of ease or some form of the past. While Wall Street and politicians might celebrate and declare victory, the outlook is more fraught with forces that are likely leading toward market regionalization over the next 3-5 years. That will add a different set of challenges for industry supply chains tasked with facilitating expected revenue growth and profitability outcomes for respective lines-of-business. Now more that ever, the notions of a resilient and agile supply chain have deep meaning.
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