R.F. Mau Company | A World Class Quality Partner
R.F. Mau Company | A World Class Quality Partner



RF Mau Blog

How Tariffs Could Impact Domestic & Global Supply Chains
Mon 3rd Dec 2018 at 3:07pm, 0 comments

As we reach the end of 2018, President Trump's tariffs are still a major topic of concern for manufacturers and consumers alike.

The latest updates in what many call the "tariff war" came this past September, when Trump imposed 10% tariffs on $200 billion of Chinese imports, with threats to increase the duties to 25% in 2019.

Who the tariffs are affecting - and how - have been constant worries on many companies' minds. Some industries are already feeling the effects of these tariffs (both positive and negative). Others aren't - but could in the future.

Besides having a broader economic impact, Trump's tariffs could potentially impact domestic and global supply chains in several ways. In fact, we're seeing some of the results of the tariffs now - and can possibly expect to see new ones in 2019.

1) Chinese exports will most likely increase so U.S.-based companies can avoid the possible effects of Trump's current and forthcoming tariffs.

According to a recent Supply Chain Brain article, Chinese export growth is anticipated to grow by 1.8% this quarter but decrease -5.6% in Q1 of 2019. This is because some U.S. importers have required that Chinese companies export their products now so that U.S.-based companies won't be impacted by tariffs next year. In fact, Supply Chain Management Review reported that Chinese import volume amounts may set industry records this year.

The results of increased imports vary. As Patrick Burnson explained in another Supply Chain Management Review article about Trump's tariffs, warehouses are quickly filling up (sometimes to overcapacity, causing delays or affecting warehouse efficiency); shipping lines have added more voyages; and U.S. ports have experienced increases in cargo volume.

2) Stockpiled inventory could lead to part shortages and could tie up working capital.

On the surface, it makes sense why U.S. companies are importing more and more Chinese goods. But how does this scramble for goods affect organizations? Often, inventory is stockpiled. This doesn't help in the long run.

Rosemary Coates explained in an article about tariffs and trade wars that "The result [of our clients stockpiling inventory] has been shortages of all kinds of parts worldwide for companies that are not stockpiling. In addition, hoarding parts ties up working capital and may put a stranglehold on your company's ability to operate."

3) U.S. exports to China will slow down.   

While Chinese imports to China will most likely increase this quarter, U.S. exports to China have slowed down and may continue this trajectory. Per a September Reuters article about the U.S.-to-China export numbers, "China's September export growth likely slowed to 8.9 percent from a year earlier from August's 9.8 percent gain...."

In fact, Daniel Shane from CNN explained that some economists expect the export growth to decline to single digits or negative percentages. The reason for this decline in U.S. exports to China is, unsurprisingly, tariffs, which correlate to a growing decline in orders.

4) Companies will need to adjust their supply chains for tariffs.

Obviously, the last thing a U.S.-based organization wants to do is to increase their prices and lose market share because of consumers who are unwilling to pay higher fees. But unless (and until) companies adjust their supply chains for tariffs, consumers will most likely have to pay higher fees on certain goods. Consequently, the need to adjust your supply chain for the tariffs is higher than ever.

5) Supply chain planning could become more challenging because of tariffs and the uncertainty they cause.

Though some tariffs are set in stone, others are still up in the air - especially those set to possibly start in 2019. With this lack of certainty, supply chain planning - defined by Gartner as "the forward-looking process of coordinating assets to optimize the delivery of goods, services and information from supplier to customer, balancing supply and demand" - will most likely be more difficult for companies who may be impacted by the tariffs.

6) Importers and U.S. manufacturers will look for alternative sources for goods and products outside of China.

Though switching suppliers is not without risks, some U.S. companies and importers have decided to look for alternative suppliers due to current tariffs and what the future ones could hold. This trend might continue in the future.

Some are switching to suppliers in other Asian countries; others are turning to domestic sources. A geographic diversification of suppliers may help companies to remain competitive and financially sound if the tariff woes continue, as well as actually avoid or prevent more risks than if they don't look for suppliers outside of China.

Conclusion

The effects of Trump's tariffs and the ensuing trade war between China and the U.S. have already come to fruition or remain theoretical - yet highly probable - in nature. We can expect to see some of the ripples of their repercussions throughout our domestic and global supply chains that we discussed in this article.

So, what does that mean for U.S. procurement departments, buyers, sourcing departments, and supply chains? In summary, warehouse space may (if it isn't already) become less and less with the onslaught of increased Chinese exports to the U.S. Supply chain planning will be more complicated than in the past. Companies who export their products to China may avoid doing so and look for optional markets to export to.

Conversely, researching alternative suppliers and sources outside of China may prove beneficial both in the short-term and in the long-term. Developing more geographically diversified suppliers can help you to face current and potential ramifications from these tariffs - especially since working with domestic suppliers like R.F. Mau Co. will help you to avoid such risks.

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