This year’s global trade tensions have forced new challenges and difficult decisions upon many companies — including tariff increases, shipping delays and complete restructuring of operations and manufacturing networks.
In all the madness, there is one constant: Companies must protect their supply chains to mitigate the risks and their impact.
Last year was marked by a backlash against global economic integration through protectionist measures and a withdrawal from free-trade agreements or economic blocs. In bids to protect domestic jobs and stop unfair transfer of U.S. technology, the U.S. withdrew from several trade agreements, including the Trans Pacific Partnership (TPP) and the North American Free Trade Agreement (Nafta). Most of the affected countries and trading blocs retaliated on equal terms.
Talks are ongoing to end the trade war but not before the U.S. and China imposed tariffs worth hundreds of billions of dollars on each other’s products.
After rounds of retaliatory tariffs, the U.S., Mexico and Canada signed a new free-trade agreement, which is likely to alter automotive supply chains in North America.
As the impact of new arrangements begins to bite, companies are starting to adapt their supply chains in response. In June 2018, U.S. motorcycle maker Harley Davidson announced that manufacturing of products destined for EU markets would relocate from the U.S. to Brazil and Thailand.
We expect this trend to accelerate in 2019, especially if the U.S. and China introduce further tariffs, or if the U.K. and EU fail to agree an orderly Brexit. German carmaker BMW has already announced that it is considering transferring production of its Mini brand from the U.K. to the Netherlands, and plans to make SUVs for Chinese customers at plants inside the country. Honda also recently announced that it will be shutting down its flagship plant in Swindon by 2021.
If trade wars, global trade tensions and protectionism continue, here are some potential short-term situations:
The global trade war and uncertainty over Brexit could become driving factors in putting financial pressure on lower-tier industrial and automotive suppliers, bringing insolvencies to the forefront of supply chain risk management.
Import tariffs may lead to higher costs for raw materials, thereby increasing financial pressure on lower-tier component makers across manufacturing industries.
Public discourse following the migration influx to Western Europe and ongoing high-profile migrant caravans traveling to the U.S. has increased many countries’ focus on physical border security.
The looming uncertainty of post-Brexit trade policies may impact what new tariff and customs regimes could look like and how those new regimes may reorient U.K.-affiliated supply chains, including possible border congestion and delays at ports, (e.g., 10,000 trucks pass daily between Dover and Calais).
Those without the means to make the transcontinental leap may find other ways to survive, including adapting new brands from lesser known origins, using cheaper components and developing something new. Others may simply do nothing.
Each year brings new challenges. Beyond the trade war disputes, there are a number of potential disruptive trends for 2019, here are a few:
Shehrina Kamal is director of risk intelligence for DHL’s Resilience360.
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