Oct 22, 2019
Trade wars – opportunity or threat to your supply chain?
The trade negotiations between the USA and China seem to be moving in the right direction, and although it looks like they are close to a formalized agreement, there is still a lack of clarity on a few issues. Until they put pen to paper, all industries are being affected, in particular, the global supply chains, who are at higher risk of rupturing.
While it’s fascinating to watch the power play between the two largest economies, let’s look at the crucial issue. How can you, as an SME survive, while your future is in the hands of the powers that be?
Tariffs are a tax on imports and must be paid by USA registered companies to USA customs and border protection for the goods that they import into the USA. Increased consumer prices and/or lower profits from absorbing tariff-related costs is now the new order of the day. The China exporter may need to shoulder some of the cost of these tariffs in indirect ways, so they don’t lose the business to another supplier, or importers will need to absorb the additional costs themselves or pass them on to the customer, regardless, there is an impact for all companies across 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 USA 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.
So, what can USA importers and China manufacturers do to lessen the financial impact that both governments have placed on their shoulders?
- Look at the critical items that you are currently importing and their country of origin. You may be able to explore short term actions such as re-routing or alternate sourcing.
- See which import category you have selected for your imports – are they correct? Sometimes, when companies import from China, they are more relaxed about the classifications they assign, so there could be an opportunity to re-classify to lower tariff categories.
- Always make sure that you get expert advice from compliance experts, so you don’t run into trouble with the US authorities.
- Perhaps there are import items that are ‘nice to have’ rather than a ‘need to have.’ There may be an opportunity to look for alternate suppliers or manufacturers to provide options. As long as this will not disrupt your business, it’s something you can consider.
- Make sure you have a sound inventory management system in place so that you don’t add insult to injury by importing too much of one thing and not enough of the other. This will add yet another line to your already inflated costs. Previously, the goal was to import large quantities to help offset transportation costs but this may no longer be appropriate given the volatility of trade wars.
- USA manufacturers based in China could look at the viability of bringing your operation home and keep manufacturing jobs in the USA.
- The trade agreement may still take some interesting twists and turns, so make sure you stay on top of the news and the trade policies for both governments.
- For China-owned manufacturers – a long term option to consider would be to move production to another country to make the supply chain more resilient. This option requires investigation and should only be decided if you are under threat of losing large accounts.
If you have been running an agile, optimized, and cost-efficient supply chain business, you should view these uncertain times as an opportunity to create a competitive advantage. If you maintain agility in your business you should be able to weather any storm.
Written by: Craig De Kock – President, NETSTOCK