The Trade War
The supply chain industry in 2019 has been characterized by the increasing trade war between the two largest economies in the world – China and the US. Both countries have been imposing high tariffs on the other. On the 5th of May, Trump gave a mandate to increase the tariffs on Chinese imports from 10 percent to 25 percent, altering the flow of goods worth $200b. In August, China and the United States have followed a reprisal pattern of tariffs as they wage a trade war, with China replying to the United States tariffs announced on the 1st of August by President Trump with its restrictions. But an unexpected announcement by the US president on the 23rd of August may change the game rules.
“American companies are at this moment ordered to search for an alternative to China.”
With this announcement, Trump gave a glimpse of how the next trade fight will become. However, Trump fails to realize that these trade sanctions on China can hurt the United States economy.
How it Affected Stocks
Financial markets all over the world fell dramatically after Trump threatened to inflict a new tariff on $300bn of Chinese products. The Financial Times Stock Exchange100 index plummeted by 2 percent as markets across Europe dropped. Also, Wall Street sold off too, as investors analyzed Trump’s decision to bring a trade cease-fire with China to an end. The Dow Jones industrial average ended 98 points at 26,485, after losing over 280 points earlier. It was the worst for the US stocks.
The Supply Chain?
China may likely use its investments to grow its economy, alleviating any trade decline. But this is a lose-lose situation for both countries as each economy needs the other. What this means is China will need to search for new allies in the APAC region to balance the shortfall. However, since the United States is the largest consumer of Chinese products, there will be a deficit. People fear that the goods affected by the tariffs may increase. And even though the duties normalize, Chinese industries will need future solutions in terms of developing more efficiencies and tackling the problems of its fast-aging workforce.
Long-term steps are needed to protect supply chains from trade wars. Supply chains will need to diversify commodities, estimate the perfect amount of demand, and upgrade equipment to reduce future risks. Automation and Artificial Intelligence are the future of the supply chain, so teams in Asia must aim to boost the capacity for reform in this area. Also, this trade war may push companies to modernize their supply chains by investing in AI systems and talent, mainly as China’s aging population is affecting its workforce and the economy in general. The talent pool also needs to improve while reducing its dependence on the labor force
Also, supply chain departments may diversify over a bigger geographical footprint, which will need regional expertise.
Another implication of this move is that the labor laws of developing countries are not stable, so companies will need to pass through bleak bureaucratic waters.
Long Term Outlook
But, for the long term, companies will need to employ people with skills to predict risk, think ahead, respond quickly to change, make strategic decisions to prevent adverse impacts of potential future trade changes. Contingency planning will become an extremely sought-after skill, especially working with Artificial Intelligence, to model likely outcomes. Also, C-suite leaders will be required to be on the lookout politically and state potential policy changes to teams. The supply chain is a business-critical sector, so leaders will need to navigate an uncertain and unstable supply chain and procurement landscape strategically
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