The Effect of Trump Tariffs on Supply Chains
“I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN” – Donald Trump (4th December 2018.)
Donald Trump has been a long-standing believer in the introduction of tariffs, holding the opinion that they will boost the US economy and allow the US to become ‘great again!’
However, not everyone agrees with the introduction of tariffs, which are, in effect, just added taxes.
Trade Wars at the Trump Administration began last year, when US President, Donald Trump declared plans to increase import duty on steel by 25% and 10% on aluminium. In response, the EU decided to add tariffs on over 2 billion worth of euros on US products, which included American whiskey.
Now Trump is at loggerheads with China, with plans for added tariffs on exports to China, if no agreement is reached.
Impact of tariffs on global supply chains
The ongoing US-China trade war is already starting to affect businesses in both countries. Trump Tariffs (Donald Trump’s plans to increase existing tariffs to exports in China) are forcing companies to rethink their global supply chain, something which is not easy to do. Tariffs don’t just affect businesses, they also affect the consumer. The higher the costs are for businesses, the more they need to add to the retail prices to soak up the losses. Everyone is indirectly or directly affected by the plans to enforce these tariffs.
The leaders of the US and China, President Donald Trump and Xi Jinping are yet to reach any kind of agreement on tariffs and if all goes ahead, hundreds of billions of dollars will be affected by increasing tariffs. If the US go ahead with the tariffs, China plan to respond without their own additional tariffs which is a real worry for many businesses, both in China and the US.
Chinese toy exporters are already citing struggles due to Trump Tariffs, despite the fact their toys haven’t taken the direct tariff hit yet.
Such is the growing concern around the tariffs in the US that 150 companies have joined together as a group, which has resulted in the Americans for Free Trade. The group is made up of many industries, including farmers, oil companies, technology, retailers and many more.
The Supply Chain
China is a major source of source of supply for many US companies, which makes changing the supply chain near impossible. Although many businesses are looking at alternatives, the additional tariffs could cause a threat to every sector of the US economy. Not just retail, but also technology, energy and many more. The scale of production often doesn’t exist domestically as it does in China and other countries, and many are just not as advanced as they are in China. In any case, any change to the supply chain would be slow.
The supply chain process can be complex, especially in a global economy. Businesses need to plan their full supply chain in advance and quite often, years in advance. They want to ensure the supply chain strategy is as seamless as possible and trying to make significant changes, is likely to be highly disruptive to the process. Demand planning needs to be done well in advance to cater for consumer needs.
If the threat goes ahead, it will cause a lot of damage to economies including South Korea and Taiwan.
There is nothing set in stone yet in terms of the tariffs are talks have just concluded, with the results being announced soon. Businesses may be ready to breathe a sigh of relief though as Trump recently took to his favourite social media platform to tweet that talks were “going very well.”
However, if no deal has been reached between the two countries, the increase to tariffs will be put in place from March 2nd, which doesn’t give businesses much time to look at their future supply chain. An agreement between the two would be a far more favourable outcome and would help to take some stress from tech-exporting companies in Asia.
If the trade war comes to an end, the US and China can look forward to a bright future. However, if it continues, businesses will need to start re-thinking their supply chain, in order to keep costs down. If the tariffs do go ahead and the results are not as favourable as Donald Trump believes, there may be further setbacks for the US.
Conclusion about Trump tariffs
As Trump seems to be defiant in his quest for tariffs, it may be worthwhile for businesses to consider their supply chain for future production. In this way, they will be more likely to keep their business sustainable in the future. Businesses who have different options available to them in terms of their supply chain, will have less cause to worry when conflict arises.