Amidst changing global narratives, revolving policies, and rise of protectionism, supply chains and businesses often end up caught in the crossfire of global trade wars. Tariffs, once employed as short-term political tools, have become long-term disruptors, forcing businesses to rethink strategies. In my work experience, I have seen how tariff changes can cause an entire organization to collapse overnight.
What Is A Supply Chain
A supply chain is the network of processes that transforms raw materials into finished products, covering sourcing, production, logistics, and delivery. Each stage of the chain offers a transformation that contributes to the final product.
For example, to manufacture a car, you need to source different parts. Each part might require materials available at different rates in different countries. A supply chain connects all the processes, from sourcing raw materials to finding parts, while maintaining the standards.
Global supply chains mean greater connectivity, but in today’s volatile market, supply chains are vulnerable to disruptions such as tariff changes and trade wars.
Why Trade Wars Effect Supply Chains?
By the end of World War 2, global trade flourished as interconnected flights, shipping and trade agreements became more common. This meant that businesses could now source the materials required from overseas, annulling the reliance on domestic suppliers. This gave birth to global supply chains.
However, a global supply chain means the flow of goods is governed by the policies set by the country. Thus, tariffs have a substantial impact on driving production costs. When trade tensions heat up, products that rely on overseas sourcing get expensive, reducing competition in the market. I have had clients who enjoyed steady margins but suddenly find themselves cornered due to a single change in tariff policy. This highlights how business leaders need to realize that tariffs are no longer just policy, but risks that need to be addressed.
I have had clients who enjoyed steady margins but suddenly find themselves cornered due to a single change in tariff policy. This highlights how business leaders need to realize that tariffs are no longer just policy, but risks that need to be addressed.
The New Tariff War Landscape
Tariff policies have become an integral part of decision-making in boardrooms across the globe. A major shift began in 2018 when the United States implemented “Section 232” tariffs, imposing a 25% tariff on steel and a 10% tariff on aluminum imports from many countries.
The most significant development has been the US-China trade war. Under “Section 301,” the U.S. imposed tariffs on hundreds of billions of dollars’ worth of Chinese goods, with rates primarily at 7.5% and 25% depending on the product category. China responded with its own retaliatory tariffs on U.S. goods, targeting key exports like soybeans and automobiles with rates typically ranging from 5% to 25%.
These trade actions were not limited to rivals. Allies like the European Union, Canada, and Mexico were also initially impacted by the steel and aluminium tariffs. This led to complex negotiations and retaliatory measures. For instance, the U.S. and EU later established a tariff-rate quota (TRQ) system to allow a certain volume of metals to be imported tariff-free, easing some of the tension. These trade disputes are dynamic, often featuring periods of escalation followed by “pauses” for negotiation, highlighting how trade policy has become a critical tool in international diplomacy.
Consequences Of Increased Tariffs
Changing tariffs has forced businesses to adapt their supply chains to changing circumstances.
1. Diversifying Production
Tariff wars have changed where companies operate their production lines. Companies, who had their production lines solely in China, are now opting for “China+1” strategy, moving productions into countries such as India, Vietnam, and Mexico. This reduces exposure and prevents fallout in case of increased tariffs.
2. Nearshoring and Reshoring
Companies have started to move production close to home to cut transport costs. While this can be beneficial, this can also increase production costs due to expensive labor in the relocated areas.
3. Volatile Freight Rates
Shipment prices are also subject to tariff implementation. Suppliers tend to make shipments before new tariffs take effect. This means freight costs increase as demand increases.
4. Higher Administrative Costs
Tariff implementation also drives administrative costs as stricter rules of origin, custom regulations, and compliance policies also take place.
How Can Businesses Adapt To Tariffs
Having clientele across industries, I have often seen company operations breakdown due to tariff regulations. However, with proper foresight and planning, tariffs don’t necessarily have to lead operational paralysis. Over two decades of tackling supply chain and logistic solutions, I have seen a few key solutions that stand out:
1. Enhance Visibility With Tech
With the right data and tools, tariffs can be tackled with lower risks and costs. Enhancing supply chain visibility by monitoring and data analytics can simulate tariff scenarios and help predict costs in case of a tariff shift.
Without proper insight, you are flying blind when tariffs change.
2. Diversifying Supplier Base
Businesses now need to have alternate suppliers to ensure their supply chains don’t suffer from tariff shocks. Sourcing supplies from a single country is now a liability
3. Inventory Planning
Tariffs create freight surges and port congestion. To combat such scenarios companies can work on front-loading shipments as tariff deadlines draw close.
Future of Supply Chains: Resilience Over Efficiency
With tariffs now not just acting as pressure tactics but actively making a difference in global trade and policy making, supply chains need to adopt a policy of resilience over efficiency even if it comes at a higher cost. Having flexible supply chains over efficient ones will give the competitive advantage to businesses.
If you are concerned about rising tariffs and your supply chain’s future in the industry, book a session with me now, and together we will build a supply chain resilient enough to get you through the tariff wars.