The U.S. imposed new tariffs on Chinese imports of consumer goods on September 1, with another round planned for December 15. These are on top of those already in place on industrial products such as steel and aluminum. China has returned the favor by imposing additional tariffs on U.S. imports. This escalating trade war continues to add risk and uncertainty to supply chains across virtually all industries. What has been the business impact so far? What actions can companies take in response? Are there any positives from this trade war? Those are some of the questions I discussed with Julian Duerschmidt, VP of Business Development at GEODIS Supply Chain Optimization, during a recent episode of Talking Logistics.
Impact of Tariffs
Since we are in a rolling calendar of tariffs past, present and future, I began our discussion by asking Julian what the impact has been so far. Julian notes that the first round affected primarily the steel, aluminum, washing machine and solar panel industries, as well as the industries using their products. The tariffs definitely raised the costs of the target industries and their customers, he says. Ford Motor Company reported a cost increase of about $1 billion, for example. And John Deere and Caterpillar have both said their costs are up over $100 million so far this year. “Farmers have also been hit very hard, with their biggest market in the world virtually closed off to them,” said Julian. Consumers, however, have been mostly isolated from the tariff impacts, although that will likely change with the September 1 and December 15 tariffs.
The tariffs also impacted jobs. Julian points out that although the tariffs initially added jobs in the steel industry, 16 jobs were lost in other areas for each job added. He also notes that after some positive results last year, the steel and aluminum companies are not doing as well this year. Another concern, he says, is that manufacturing PMI has gone below 50 the past couple of months, indicating contraction.
Supply Chain Impact
Julian says the impact of tariffs has not been significant on supply chain operations so far, with container imports and trucking volume both down a couple of points. He attributes this partially to all of the uncertainties around changing tariff amounts and dates, which is forcing companies to delay decisions. He notes, however, with the tariffs on consumer goods delayed until December 15, warehouses are bursting with inventory as companies try to stock up before the next round of tariffs kick in. “The warehousing business is a good one to be in today because you’re able to get premium pricing and your warehouses are full,” says Julian.
What can companies do to respond?
Julian explains that in the short term, companies are looking for alternate sources for products and materials to avoid the tariff costs. “From a transportation standpoint, we have systems and control towers that can help companies optimize shipping from alternate countries,” he says. “But if companies don’t already have manufacturing facilities or partnerships in those countries, they are not going to be able to take advantage of these sources before the next round of tariffs begin.”
Julian notes that companies that maintained part of their manufacturing in the U.S. are better positioned to expand that production rather than rely on sources from alternate countries such as Vietnam. The Wall Street Journal and other sources are indicating that Vietnam manufacturing resources, skilled labor and infrastructure are already maxing out and developing additional resources there may take years. “Companies using mostly unskilled labor may be able to move fairly quickly, but companies such as electronics requiring skilled labor and $100 million investments in facilities are giving management pause in making those decisions in light of all of the political and supply chain uncertainties,” he says.
Is anybody winning?
When you look at all of the costs and supply chain disruption the tariffs and trade war have caused, it’s hard to believe anyone is really winning. Julian points out there are a few winners, however. For example, the function of trade compliance has been greatly elevated because of the costs, potential penalties and uncertainty surrounding the changing trade environment. Also, due to the shortage of skilled labor domestically and abroad, and the need to ramp up production from alternate sources, robotics, automation and AI providers are doing very well.
With all of the chaos and uncertainty in the current environment, what should companies do now to position themselves for dealing with future trade war impacts? What will differentiate leaders from laggards in this area? And how do all of the costs incurred by businesses and consumers compare to the billions of dollars being collected in tariffs? Julian shares some interesting insights and advice on these questions and more, so I encourage you to watch the full video for all the details. Then post a comment and share your own thoughts and perspectives on this topic.