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Free Trade Discourse- Time to Shift Emphasis Towards More Meaningful Initiatives

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Prediction Eight of or 2016 Predictions for Industry and Global Supply Chains (Available for Complimentary Downloading in our Research Center) anticipates developments surrounding global trade will occupy the attention of many industry and regional global supply chain organizations in 2016 and beyond.

The most prominent trade development is turning out to be the ratification process involving the proposed Trans-Pacific Partnership (TPP). In early October, ministers of the 12 TPP countries announced conclusion of their negotiations regarding trade among what is estimated to represent 40 percent of current global GDP, which is rather significant, especially from a global supply chain context. The countries to be included in TPP are: Australia, Brunei, Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam. In early February, ministers from the 12 countries signed-off on the overall agreement paving the way for the individual member country ratification process that must be completed in two years.

Supply Chain Matters highlighted some of component sections within TPP in a two-part commentary series in November.

As we near the completion of Q1, the TPP ratification process among member countries has involved much political discourse. It now appears that a building political tide among developed countries will delay or possibly derail TPP.

Our original feeling was that as TPP details emerged, industry supply chains would begin to uncover certain strategic and tactical opportunities and impacts related to current global sourcing strategies. Some of these impacts will relate to specific industries and include either current or potential future global value-chain strategies that exist in China, Vietnam, the Eurozone or other countries. Among the goals of TPP was lower trade barriers and increased export opportunities for developed countries in their efforts to market and sell more products in the emerging markets of Asia.

However, as the ratification process continues to unfold, lots of concerns are being raised regarding the true benefits of open global trade as well as the protection of jobs in developed countries.

While business trade groups and associations such as the U.S. Chamber of Commerce have endorsed TPP, other industry factions as seeking either additional concessions or added protections. For instance, pharmaceutical firms are seeking broader provisions for intellectual property protection while the apparel industry remains concerned that TPP could disrupt efforts in fast fashion sourcing, where regional designs are sourced and produced in the consumption region just as the Eurozone of the U.S. in order to accelerate time-to-market turnaround.

Yesterday, a front page article appearing in The Wall Street Journal provided added awareness to the notion that free trade policies are not at all resonating with the electorate in the United States and other developed nations. Resentment toward free trade and indeed building frustrations around government policies more influenced by lobbyists and big business appears to occupy the minds of voters, and consequently, legislators.

In the ongoing U.S. Presidential primary voting process, candidates for both the Democratic and Republican parties have each declared opposition to TPP. What’s even more interesting is to observe primary elections held in U.S. states that would seem to have significantly benefitted or were harmed from free trade. For instance South Carolina, which has become a hub for automotive manufacturing and exporting for a variety of foreign based manufacturers, had voters electing to favor candidates openly opposing TPP adoption in its current form. A state such as Michigan which remains the hub of automotive supply chain manufacturers with unionized workers opted for candidates such as Donald Trump and Bernie Sanders who threaten to blow-up existing trade deals that take away from U.S. jobs. It’s interesting to hear Mr. Trump rail on a company such as Apple that favors a supply chain sourcing strategy where upwards of a million contract manufacturing assembly jobs exist across China.  Perhaps Mr. Trump’s staff have read some of our Supply Chain Matters related to Apple.

In yesterday’s report, the WSJ cites a survey of 1200 people conducted by Caddell Associates, indicating that among Republican voters, by a margin of 59 percent to 4 percent, and among Democratic voters by a margin of 35 percent to 4 percent, many believe that trade deals benefitted other countries rather than the United States.

Thus, political support for TPP ratification among both U.S. political parties has indeed faltered making any ratification this year somewhat unlikely.  Similar opposition is building in other developed countries such as Australia, Canada and Japan.  Meanwhile, countries such as Vietnam are embracing the potential benefits that TPP will provide to that country’s economy.

Perhaps lost in all of the current discourse are broader tenets provided by TPP in areas such as intellectual property protection, stricter social responsibility and labor collective bargaining requirements along with broader and more impactful supply chain sustainability standards.

Obviously, in order for TPP to gain ratification, much more education and informed discourse will be required. Those companies that favor TPP will have to shift their energies from one of political influence to that of public education and open discourse. Other trade initiatives such as the Transatlantic Trade and Investment Partnership (T-TIP) could be bogged down by the same political discourse.

Rather than be muddled by ongoing uncertainties as to trade and manufacturing sourcing environments, we are now of the view that energies are better focused on efforts directed at insuring long-term supply chain sustainability and greenhouse gas emission reduction strategies. This is an area where, despite political rhetoric, there is a building populace consensus that our planet is in jeopardy from the effects of global climate change.  Those effects include risks to strategic supply continuity and longer-term impacts to markets served.

By influencing value-chain sourcing strategies towards strategies that insure supply chain sustainability you risk not getting de-railed by an uncertain political tide directed at the perceived value of free trade agreements. While business executives can rail on too much regulation and regulatory complexity, they should readily understand that climate change poses a far greater strategic threat.

We would certainly value reader comments on this topic.

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

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