Global equity markets have once again turned volatile on the sudden and unexpected Twitter based announcement by U.S. President Donald Trump threatening to significantly increase import tariffs on goods imported from China. Multi-industry supply networks are at risk, depending on the outcome, and smaller businesses are especially at-risk without a contingency plan.

Up until this weekend, key Trump Administration officials were exhibiting an optimistic tone that ongoing trade talks among China and the United States could be wrapped-up by the middle of this month. There were reports of remaining sticking points to be resolved including intellectual property protections and whether existing tariffs should be allowed to continue. Global Trade

On Sunday, the U.S. President threatened to raise existing tariffs on $200 billion in Chinese imports to 25 percent starting on Friday, from the 10 percent current level. He further “tweeted” that the U.S. would impose additional 25 percent tariffs “shortly” on $325 billion in added Chinese goods that haven’t yet been taxed. Obviously, that gesture, public as it was, rattled global markets.  Some are viewing the gesture as a form of hard bargaining tactic common to Trump when negotiations are perceived to not be to his favor.  Others are pointing to a potential rift among the Trump Administration’s key participants. The Wall Street Journal weighed in with the viewpoint that the sticking point was: “U.S. demands that a trade agreement lay out an inventory of laws and regulations that Beijing must revise for compliance, according to people briefed on the negotiations.”

As we pen this Supply Chain Matters commentary, China has confirmed that the country’s trade delegation led by Vice Premier Liu, will meet with the U.S. delegation one day later than originally planned, that being Thursday of this week. Two senior officials reportedly will lead an advance team to Washington on Wednesday. That literally leaves one-day for the two negotiating parties to come to some final resolution.

Regardless of this week’s outcomes, multi-industry supply chain management teams face an escalated scenario of cost impacts. The scope and level of tariffs being proposed will involve the vast majority of Chinese products imported into the United States, including intermediate components.  We anticipate that high tech, consumer electronics and automotive supply networks will be especially impacted.

The sheer magnitude implies that that smaller firms will likely face higher impacts than far larger firms in their ability to pass along added tariff costs to customers, or to have suppliers share in adsorbing the added cost increases. U.S. farmers and agricultural related businesses face the possibility of added declines in product demand, depending on either the final resolution of talks or the imposing of added counter-tariffs by China.

While many remain optimistic that a meeting of the minds will eventually occur, Supply Chain Matters remains of the belief that ongoing trade relationship among these two powerful and influential nations will remain tense for the foreseeable future. Relationships are built on trust and the President’s actions this weekend may well have eroded trust for many months to come.

Procurement executives are well aware of the tradeoffs of hard or contentious negotiations, and the implications for longer-term.

Having responsible contingency strategies and plans relative to China sourced goods is now a necessity, as are plans to identify where additional cost savings can be garnered from other areas. Similarly, product demand strategies pegged to access to China’s markets will have to constantly be monitored and assessed for market risk factors.

 

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