“Compliance, sanctions, and tariffs loom,” writes Lora Cecere, Founder of Supply Chain Insights. She adds, “Supply chain leaders have little history to use as a guide to prepare.”[1] Cecere is not alone in her concerns about how Trump Administration trade policies are going to affect global trade. EY analysts note, “[Trump administration] trade policies may directly or indirectly impact most industry sectors … including consumer products, technology, industrials, agriculture, and life sciences. During the last few years, U.S. and non-U.S. companies have been vigorously evolving their strategies, operating models, and supply chains in response to many disruptive forces, including COVID, military conflicts, and other geopolitical and macro-economic factors. [The Trump] administration’s policies are now forcing U.S. and non-U.S. companies to reexamine the efficiency and resiliency of these recently developed strategies and supply chains.”[2] A survey conducted by the Descartes Systems Group, which examined the most significant global trade challenges facing logistics and supply chain leaders, found “that 48% of respondents identified rising tariffs and trade barriers as their top concern, closely followed by supply chain disruptions at 45% and geopolitical instability at 41%.”[3]
Industry and Consumer Concerns
The greatest concerns, for both industry executives and consumers, surround the adverse effects of an all-out trade war. Journalist Helen Atkinson reports, “In September, 2024, a report from the Peterson Institute for International Economics concluded that Trump’s main tariff proposals — assuming that the targeted countries retaliated with their own tariffs — would slash more than a percentage point off the U.S. economy by 2026 and make inflation 2 percentage points higher [in 2025] than it otherwise would have been.”[4] Cecere observes, “Current supply chain practices are not designed to operate in a high tariff/compliance environment.” To bolster her conclusion, she writes, “The Tariff Act of 1930 — commonly known as the Smoot–Hawley Tariff — signed by President Herbert Hoover on June 17, 1930, raised US tariffs on over 20,000 imported goods. The tariffs under the act, excluding duty-free imports, were the second highest in United States history, exceeded by only the Tariff of 1828. Economists and economic historians have a consensus view that the passage of the Smoot–Hawley Tariff worsened the effects of the Great Depression.”
It’s clear that U.S. trading partners are not going to calmly accept a one-sided trade war. In December 2024, the Wall Street Journal reported, “As Trump’s second stint in office approaches, Beijing is brandishing an expanded arsenal of countermeasures that it is likely to draw upon as the president-elect threatens across-the-board tariffs and levies of as high as 60% on Chinese-made goods. In recent days, Beijing has launched a regulatory probe into U.S. semiconductor champion Nvidia, threatened to blacklist a prominent American apparel maker, blocked the export of critical minerals to the U.S. and squeezed the supply chain for drones, offering clues into how non-tariff measures are likely to dominate China’s tool kit.”[5] Canada and Mexico have also threatened to retaliate against proposed tariff hikes on their goods. Despite widespread concerns, journalist Brian Schwartz reports, “Trump’s team has told corporate consultants there is no waving [Trump] off his plans to make liberal use of tariffs.”[6]
What Can Companies Do?
Consumers are likely to be the biggest losers in an intense trade war; however, supply chain expert Nari Viswanathan believes there are strategies companies can adopt to help them cope during a trade war. He writes, “Tariffs hit hard on the bottom line by hiking up costs across supply chains, thereby affecting sourcing, manufacturing, and distribution decisions. However, if organizations adopt proactive tariff optimization strategies and build adaptive supply chains, these challenges can be turned into opportunities.”[7] His three suggestions are:
● Diversify. Viswanathan explains, “Diversification of raw materials sources, exploration of alternative materials, or investment in domestic production are some of the ways to limit exposure to the tariff.” With China dominating much of the essential minerals market, this may be easier said than done.
● Reshore. According to Viswanathan, “Reshoring production, regionalizing supply chains, or finding alternative suppliers are among the strategies available to mitigate the impact of tariffs on intermediate goods.” Again, this is easier said, than done. Christopher Tang, a distinguished professor and the holder of the Carter Chair in Business Administration at the UCLA Anderson School of Management, insists, “Building domestic supply chains in the U.S. can be time-consuming and cost-ineffective.”[8] He prefers regional supply chains. He explains, “Ultimately, a U.S.-Canada-Mexico supply chain can monitor and respond to changing needs quickly and accurately. To ensure financial sustainability, such regional supply chains must be agile and flexible. They must be able to produce certain ordinary products in normal times, but also pivot quicky to produce critical products within the same category during a crisis.” However, trade wars with Canada and Mexico could make that suggestion more difficult as well.
● Redesign Products. Viswanathan writes, “Product redesign, value-added manufacturing, and duty drawback are a few of the numerous potential strategies to implement to lower the tariff burden.”
The staff at A&O Shearman writes, “It is critical that companies dependent on imports into the U.S. carefully evaluate their supply chains to proactively assess potential risk from increases in tariffs. Any companies importing materials into the U.S., or which are dependent on their suppliers doing so, may consider mapping upstream supply chains as much as is reasonably feasible. Supply chains connected to China or certain jurisdictions linked to tariff circumvention by Chinese companies (e.g., Southeast Asian nations such as Cambodia, Malaysia, Thailand, and Vietnam), or is otherwise tied to Chinese suppliers may pose especially elevated risk. Imports from Mexico, Canada, and the BRICS countries (i.e., Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, the United Arab Emirates, and, if applicable, Iran) may also face elevated risk. Each of these jurisdictions have been varyingly subject to threatened tariffs by the [Trump] administration, and companies will need to closely monitor developments to gauge escalating risks.”[9]
They go on to note, “In some cases, it may be possible to avoid tariffs altogether. Some companies may be able to achieve this by re-routing portions of impacted supply chains into the United States. Where domestic production of source materials or products is a realistic (and commercially feasible) option, this may be particularly attractive. Alternatively, routing supply chains to non-U.S. jurisdictions not currently, or, to the extent discernible, imminently, subject to relevant tariffs can reduce risk. Free Trade Zones (FTZs) may be another option, particularly for products being processed in the United States for reexport overseas.” Their bottom line, however, is: “Avoiding risk of increased tariffs entirely may be impractical or impossible for some companies and supply chains.”
Concluding Thoughts
Some business executives may hope that Trump’s tariff threats are simply a negotiating ploy to get trading partners to the bargaining table. In some cases, that’s probably true. But the United States isn’t the only country enacting protectionist legislation. The risk intelligence research firm Verisk Maplecroft reports European countries are leading a global trend towards more protectionist policies.[10] Atkinson insists this situation is going to be the new normal — at least for a while. She explains, “It’s tempting to think that, if this is all about politics, the situation is temporary. But there’s a parade of other, powerful ‘temporary’ influences on trade policy, currently set to stretch over the horizon. Many businesses are making widespread changes to the countries where they source goods and materials, and even the trade routes they rely upon. That would bring them up against new rules and requirements at the best of times, but they are also encountering legislative changes that reflect an overall push for greater accountability and visibility related to a range of issues, including forced labor, climate change and waste. … Add in the burgeoning U.S. and EU trade wars with China, and the timing could hardly be worse.”[11] If the late, great actor Bette Davis was still with us, she would be justified in raising a warning similar to one she made famous in the 1950 film “All About Eve.” She would tell us, “Fasten your seatbelts, it’s going to be a bumpy year.”
Footnotes
[1] Lora Cecere, “Preparing to Run Supply Chains at the End of the Second Global Economy,” Supply Chain Shaman, 13 December 2024.
[2] Al Paul, Anna Voortman, Lynlee Brown, and Sameer Anand, “Tips for Manufacturers to Prepare for President Trump’s Trade Policies,” IndustryWeek, 12 December 2024.
[3] Staff, “Tariffs and Trade Barriers as Top Concern of Supply Chain Leaders,” Logistics Business, 9 December 2024.
[4] Helen Atkinson, “The Trouble With Trump’s Tariffs,” SupplyChainBrain, 11 December 2024.
[5] Rebecca Feng, Heather Somerville, and Jon Emont, “China Comes Out Swinging as Trump Trade War Looms,” The Wall Street Journal, 12 December 2024.
[6] Brian Schwartz, “CEOs Want Trump to Change Course on Tariffs. He Isn’t Budging.” The Wall Street Journal, 15 December 2024.
[7] Nari Viswanathan, “Terrified of Tariffs? Three Key Strategies to Implement Tariff Optimization and Create Adaptive Supply Chains,” Logistics Viewpoints, 12 December 2024.
[8] Christopher Tang, “It’s About Time to Build Regional Supply Chains,” IndustryWeek, 30 March 2022.
[9] Michael J. Walsh, Jr., Ken Rivlin, Nick Ognibene, and Maura Rezendes, “U.S. tariff risks and risk mitigation,” A&O Shearman Insights, 9 December 2024.
[10] Sarah Jolly, “Europe leads rise in protectionism to secure supply chains,” Commercial Risk, 12 December 2024.
[11] Helen Atkinson, “Companies Face New Normal of Tariffs, Trade Regulation Compliance,” SupplyChainBrain, 25 June 2024.
