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Trade wars: Opportunity or threat to your supply chain?

Trade wars: Opportunity or threat to your supply chain?

Craig de Kok

It's fascinating to watch the power play between the US and China, but there are crucial issues at stake that directly affect the global supply chains. Although the negotiations seem to be moving towards a definitive agreement, it is not yet 100% finalized; it's advisable to look at what options you have to help to mitigate your risk.

The US customs and border protection collect the taxes on imports from the US-registered company that is importing the goods. Items imported from China hold a higher tariff. This means that increased consumer prices and/or lower profits for the US importer are the new normal. US importers will need to absorb the additional costs or pass them on to the customer, or china manufacturers will need to shoulder some of the cost indirectly or fear losing business to other suppliers. Regardless, there is an impact on all companies in the supply chain.

Nike has introduced innovative technology Apps in its product range. By offering extra value to their client base, they have managed to inflate their prices to cover increased costs without seeing any negative impact. But this is an exception and won't be the case for all US importers. Heavy-duty equipment manufacturer, Caterpillar has had to increase production costs by more than USD100m due to duties on Chinese products and the new tariffs imposed on metal imports. 

US importers and China manufacturers should look at things they can add or change in their supply chain process to help weather the storm while both governments try to reach a suitable outcome. A few things to consider would be:

  • What are the critical items that you are currently importing, and where is the country of origin?  There may be an opportunity to look at short term solutions such as re-routing or finding an alternative provider. 
  • What import category have you selected for your imports? – are they correctly categorized? There could be an opportunity to choose a lower tariff category.
  • Make sure that you get expert advice from compliance experts first before you make any amendments - you don't run into trouble with the US authorities.
  • Maybe there are import items that are 'nice to have' rather than a 'need to have’. This could allow you the opportunity to look at other suppliers or manufacturers to give you some options. Ensure though that this doesn't disrupt your business in any way.
  • Implement a reliable inventory management system. This will help you forecast your inventory correctly, so you don't over or under order, which will add even more expense to an already inflated cost. The goal before the trade wars was to import large quantities to offset transportation costs, but this may no longer be appropriate given the volatility of the situation.   
  • The US manufacturers based in China could look at the viability of bringing your operation home and keep manufacturing jobs in the USA.
  • Be sure to stay on top of the news as we may see some unexpected changes taking place, and you may need to change your modus operandi.
  • China-owned manufacturers could consider moving their production to another ASEAN country. This would be a long-term decision but would ultimately make the supply chain more resilient. This option requires investigation and should only be considered if you are under threat of losing large accounts.

View these uncertain times as an opportunity to create a competitive advantage. If you have been running an optimized, cost-efficient, and agile business, there is no reason why you will not continue to operate successfully during these times.

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