Globally, we’ve been experiencing far-reaching tariff changes precipitated in the US – and with Brexit on the horizon that won’t be changing any time soon. The ripples of one tariff change resulting in another are inevitable, as countries and marketplaces respond and retaliate. When tariff changes happen, there is a long ‘shaking down’ period of adjustment. However, what the world experiencing now is being described more as a tariff ‘war’.
The political landscape has been meeting and dealing to try to de-escalate the latest tariff battles that have been going on. In July, Jean-Claude Juncker, President of the European Commission, met with Donald Trump as the IMF explained how the US precipitated trade tariff crisis could cost the global economy $430bn, and lower global growth by 0.5% by 2020.
However, regardless of the headlines and the global impact, we also need to look at the impact of the current situation with trade tariffs and their volatility on individual supply chains themselves. There’s no escaping that this period of uncertainty will impact on supply chains and they need to be ‘tariff-proof’ to be able to withstand the changes ahead.
The Impact of Tariff Changes on Different Industries
Whilst no industry is immune, different industries are more notably hit than others. The original battles were triggered by the US levying a 25% import duty on steel and a 10% one on aluminium. The EU responded by levying increased tariffs on all sorts, from denim to motorcycles. The impact of this tariff change inevitably hits a range of industries including consumer appliances, car and automotive manufacturing, machinery and construction.
The US government’s aim was to protect American workers. However, the opposite is being reported. For example, Harley Davidson has stated that the retaliatory levies against the US will increase their costs by $100 million each year. Volvo has also announced they at the may have to go back on their promise to hire 4000 US employees at a new factory in South Carolina, again because of the tariffs. Other US businesses have also had to reduce their workforce to absorb the costs of the tariffs. However, US washing machine manufacturer Whirlpool has benefited from the situation.
How Do You Prepare for Tariff Changes?
Supply chain leaders need to be confident that they have the skills to respond appropriately to tariff changes in the global marketplace in a way that ensures security. Being able to flex and adapt to sourcing products from elsewhere, and building new trading links, is imperative. Additionally, it’s important to consider regional production as a means to securing the future.
However, this approach also increases complexity within already complex systems. It also potentially increases costs which is why it is crucial to always have one eye on alternative sources of supply should it be necessary to change. It’s necessary to look at the differing landscapes of alternative supply sources and investigate and understand the risks associated with each one.
Alongside this, in order to tariff-proof your supply chain, you need to consider your buffer zone. This means working out how shortage of supply affects the whole chain, in terms of both physical manufacturing but also in terms of cost and profit margins.
This is particularly important to understand when it is raw materials themselves, such as aluminium and steel, which are at the start of the cascade in the tariff battles. The result is a knock-on effect all the way down the chain. Sometimes the increase can be absorbed, in small amounts, throughout the supply chain. However, the end consumer cannot be protected in all cases and in some instances, it is not possible to avoid a price increase.
The result is greater pressure on all within a supply chain to rationalise costs and potentially restructure sourcing. Negotiations with suppliers will come under the spotlight. Alternatives and different approaches are likely to be necessary.
It’s also inevitable that as the ripples of tariff changes hit every corner of supply chains, there will be further retaliations and even escalations. There will be winners and losers as different parties see their market share shrink, or grow. Procurement specialists will need to keep close eyes on commodity prices and adapt their sourcing strategies taking in to account the issues of quality, supply and continuity.
Furthermore, now is the time to use the data available to you, from both internal and external sources, as a source of intelligence and insight into planning for various different scenarios regarding tariff changes. This is a good risk mitigation approach that should be being undertaken in different forms across the business on a regular basis anyway. Using this knowledge to simulate different scenarios you can tariff-proof your business as well as reduce other elements of risk.
Bringing in the Experts
Tariff-proofing your business is just one element of mitigating risk across your supply chain. Mitigating risk is also about adding value by preparing for the future, including unknown scenarios, and improving efficiency and transparency. These are specialist tasks, often requiring an external viewpoint and skillset.
There’s no doubting that the tariff changes, both those that have already happened, and those that are likely still to come, are affecting supply chains globally. However, as with all geopolitical risks that influence us, we can also see it as an opportunity for growth and a chance to ensure our own success.
Receive support and advice on how to tariff-proof your business, and how to mitigate risk and respond to marketplace changes, by getting in touch with our supply chain consultants. Call today on +44 (0) 121 517 0008. Our consultants are experienced, internationally focused, and dedicated to the success and growth of your supply chain.