Navigating Your Supply Chain Through the Uncertainty of Trade War
Trade tensions between the United States and China are running high and intensifying with each new week. With no clear resolution in sight, many are questioning the inevitable impact this will have on the global supply chain. While some companies are just beginning to consider changes to their operations, many are deep in the process of either moving production elsewhere or are seeking out alternative schemes. However, when it comes to navigating these uncertain times there’s no “one-size-fits-all” approach.
Gearing up for change on a global scale
The supply chain is a living ecosystem where even the smallest change can send a rippling effect throughout the industry. Considering this, the extent of the impact of a trade war is unpredictable. Take for example China’s announcement to halt the purchase of U.S. agriculture products. Considering that soybeans and other high-volume exports are frequently consumed by China, it’s likely that this development will spur a surplus and ultimately trigger a chain reaction that will lower the price U.S. producers will be able to get for their products.
This action is bound to create an adverse spiral effect causing farmers to be unable to meet financial obligations. In turn, purchases such as equipment are likely to decline, which can lead to more U.S. government subsidies to keep the industry. In fact, higher manufacturing costs due to aluminum and steel tariffs have already impacted American companies, such as Deere & Co, forcing changes to their supply chain.
Complexities beyond China
In an attempt to overcome these obstacles, many U.S. multinationals are looking to alternative sourcing in countries such as India and Mexico. However, this decision comes with its own set of obstacles so supply chains should proceed with caution. Take for example the final negotiation and ratification of the “New NAFTA,” which is causing companies to reconsider any sudden production moves to Mexico.
Furthermore, India’s complex trade environment doesn’t make for an easy move either. As of June 16, 2019, India has enacted regulatory tariffs on some U.S. products, ranging from 10-20 percent, in response to the steel and aluminum tariffs imposed by the U.S. under Section 232. Moving productions out of China is not the be-all, end-all answer to rising above the trade war, and companies will need to navigate these requirements to determine if a supply chain shift provides a long-term, scalable alternative.
Considering the alternatives
Some companies are considering alternative methods of production or perceived loopholes to avoid impacts of the trade war on their supply chain. While these perceived loopholes may seem to be an easy way to avoid the impact of increased tariffs on their supply chain, this strategy is not a “magic pill.” When considering this it’s important to remember that each country has its own rules and nuances that must be carefully examined to ensure changes to the supply chain follow all statutory requirements.
Moreover, making any sudden changes in trade patterns will likely lead to heightened assessment by regulating bodies which increases the likelihood imports/exports will be reviewed, and could result in significant delays. Companies would be best advised to thoroughly document their manufacturing and procurement practices and engage expert council on new or unfamiliar policies and procedures impacting operations.
Building a resilient supply chain
In order to best navigate these turbulent times, it’s imperative that the supply chain is treated as living. Taking steps towards establishing core supply chain KPIs and metrics will help supply chain leaders determine how to choose a new trade lane that is best aligned with business goals. Companies should invest in real-time data analytics tools to enhance visibility and velocity and look to a partner with well-established trade networks in order to build a strong ecosystem and better navigate the uncertainty of global trade tensions.