How the Trade War is Reshaping Global Supply Chains
As another round of tariffs looms, businesses are preparing to make difficult decisions when it comes to sourcing, moving and pricing the products they sell. Whether the trade war between the United States and China continues or comes to a sudden and unexpected conclusion, one thing is certain: now more than ever enterprises need to understand their options for designing the supply chain of the future.
Indeed, the nature of globalization has changed. And with an additional 10% in tariffs on $300 billion in goods imported from China to the U.S. set to take effect on Dec. 15 – not to mention concern over retaliatory tariffs from China – industry leaders are sounding the alarm.
“As we’ve said repeatedly, we support the administration’s goal of restructuring the U.S.-China trade relationship,” David French, senior vice president for government relations at the National Retail Federation, said in a recent statement. “But we are disappointed the administration is doubling-down on a flawed tariff strategy that is already slowing U.S. economic growth, creating uncertainty and discouraging investment. These additional tariffs will only threaten U.S. jobs and raise costs for American families on everyday goods.”
The retail sector isn’t alone. Multiple industries, from construction and automotive to apparel, consumer packaged goods and agriculture, have already felt the effect of heightened trade tension between the U.S. and China. In some cases, the burden of increased tariffs is passed on to customers. But there is only so much wiggle room when it comes to balancing value and customer loyalty.
With little sign that either side will back down, business leaders now reflect on whether it’s worth enduring the ongoing burden of tariffs or if it’s time to reorient the supply chain.
Can Supply Chains Adapt to Shrinking Globalization?
When the world’s two largest economies engage in a trade war, there are no easy answers for the businesses caught in between. The last several decades of globalization have stretched modern supply chains. Both goods and finances flow across massively complex and far-reaching networks, and the process of taking a product from source to customer involves many trading partners. For those American companies considering taking the supply chain out of China, decisions won’t come easily.
A new special report by The Economist examines those challenges, putting into context the enormity of the decisions companies must make in a world where the global trade rate has fallen more than 3% in the past two years. As global businesses consider the environment, the report takes a look at how these sweeping changes could affect the pace of innovation, the effect on sales, the urgency for digital transformation and what it might cost to continue business as usual or change sourcing strategies through near- and reshoring.
While realigning the supply network might mitigate the effect of tariffs, business leaders must also consider several tradeoffs, such as cost, labor, quality, or service levels and cycle times. To help examine what some of those tradeoffs might be, The Economist worked with LLamasoft to show how the ability to look at different scenarios gives executives the ability to make the right decision for their supply chains.
While it might be too soon to tell if the age of globalization is ending or if it’s simply hit a bump in the road, the trade war is causing businesses across all industries to rethink their supply chains to mitigate risk and keep the flow of goods running smoothly. And while no decision comes easily, they don’t need to be made in a silo. By using advanced technology to create a digital twin of the supply chain and modeling multiple scenarios, enterprises can answer the most difficult questions about their supply chains and act confidently and quickly to build the supply chain of the future.