Download the full 2018 annual report hereU.S.- China Trade Conflict Calls for Scenario Planning
Even at the start of 2019, supply chain managers were still grappling with tremendous uncertainty over what would happen with the tariffs imposed by the U.S. on Chinese imports, as well as the reciprocal Chinese tariffs on U.S. goods. Would tariffs double on March 1 as threatened by President Trump? Would prospects improve for a trade deal in the second or third quarter? Would the U.S. trade representative grant more tariff-e tariff-exclusion requests from U.S. importers on top of those granted for 984 products in December 2018?
Among the top industries impacted are automakers. U.S. auto giants GM and Ford both announced in that anticipated tariffs on metals would cost them each approximately $1 billion in profits annually.
Resilinc’s analysis of our customers across industries shows that 278 supplier sites in China responsible for 42,000 parts and supplying 5,000 companies would be subject to tariff increases under Section 301, the section of the Trade Act of 1974 that authorizes the imposition of tariffs in response to unfair trading practices.
To plan for an uncertain future, companies importing these parts should model and evaluate multiple scenarios, ranging from Best Case (in which China agrees to relax its currency protection measures, allow more joint venture ownership, improve IP protection—and in turn both countries reduce tariffs) to Escalation Case (in which the parties don’t come to agreement and escalate with additional tariffs).
Mitigation playbooks should be developed, as illustrated in the example below for an amino acid supplier.
Lack of visibility in lower tiers of their supply chain puts many companies at risk for surprising China-US tariff impacts. One example from the food and beverage industry: A large U.S. based food manufacturer was hit with a significant short-term price increase on a commodity ingredient that it used in large volume—a commodity that it had assumed originated in the United States. When procurement staff inquired about the increase, they were shocked to learn that their supplier’s supplier had been receiving this commodity from a Chinese company for many years, and it was simply passing on the tariff costs.