Realigning the Supply Chains - Impact of Trade Wars

Realigning the Supply Chains, (http://blog.think-spark.com/2019/07/realigning-supply-chains.html) first driver - Impact of Trade Wars - is a kind of long term, mostly irreversible and a relatively permanent event.

Tariffs have a history of being implemented as a temporary affair but staying permanent. One reason for that is increased tariffs lead to increased revenue for the government. Governments factor that increased revenue in their income calculations. This is one of the reasons for Tariffs to get imposed as a temporary measure to distract something but stay relatively permanent.

Evidence suggests that Trade War will have more than temporary impact on Supply Chains. My guess is that Supply Chain need to appreciate it holistically. A couple of impact areas that I see are,

 

a. Supply Chain Costs are set to rise due to Trade War. e.g. commodity costs are purely driven by Demand - Supply. A country which produces the highest quantity of steel is unable to consume all. So it exports. The largest consumer of the commodity doesn't have enough capacity installed in its country to produce as much as required so its importing. What happens now? Imports have become costlier, so companies would like to buy from local manufacturer in the country. Demand exceeds Supply, prices increase. Also if the in country sourcing price is much lesser than tariff imposed import price the as a natural price adjustment, local prices will increase to be close to import price, albeit with a slight discount. This is one example but the fact is capacity creation doesn't happen as soon as decision to impose trade restrictions. Supply Chains will have to identify newer ways to align themselves to meet Supply Chain cost targets.

b. The need for Supply Chain Network Redesign will probably be an important impact of Trade Wars. What we have seen emerge in past few months, with consignment being redirected via countries which have not been impacted with higher tariffs, is a short term reaction which will have a short life cycle. Governments will plug in that loop hole very fast. On a larger scale, Supply Chain Professionals need undertake a a holistic review of its Supply Chain Network, work on their risk Exposures and Realign as fast as possible. Trade Wars have shown a clear intent of governments trying to be "inwardly" focused. Supply Chain Networks will have to be redesigned from just being "Global" to "International" and with a higher focus on being "Glocal"

c. Demand Slowdown - With China posting lowest quarterly growth in 27 years (https://www.cnbc.com/2019/07/15/china-economy-beijing-posts-q2-gdp-amid-trade-war-with-us.html) as the trade war drags on, India is slowing down with low growth figures, I foresee a large impact of Trade Wars on Supply Chain Strategies to Realign the Supply Chains. How nimble footed is your Supply Chain to align itself in a short period of time to meet a new reality will be a crucial factor.