Stormy Seas Ahead Resulting from Trump’s Tariffs?

March 20, 2018 Gary Neights

Technology can help you navigate the turbulent waters

President Trump recently announced tariffs on steel and aluminum imports.  While this was met with applause from some in the domestic steel and aluminum industry, some analysts and leaders pointed out some potential problem areas.

Forbes published Trump's National Security Tariffs Have Nothing To Do With National Security, which suggested other countries may label his action protectionist giving them legal basis to retaliate.  The article also said that automation and demand changes have contributed to the current US manufacturing situation.  Supply and Demand Chain Executive published, U.S. Trading Partners Criticize Tariffs, which described that allies like South Korean and Japan may look for new markets for their products.  This combined with the US pulling out of trade agreements like the Trans-Pacific Partnership (TPP) has potential to change international trading patterns.

What are some of the specific supply chain areas to watch out for and how can technology help in an era of tariffs?  

First, a decline in United States economic activity and revenue could be seen.  Tariffs are an added cost.  Prices may rise on products from ranging from canned soup to guns to pickup trucks. Higher prices may decrease demand.  Retaliatory tariffs may decrease US export revenue.  Within the steel and aluminum industry, domestic producers will see better prices whereas metal formers will see cost increases.  Overall, the economy may contract.

Corporations may see increased working capital costs.  In addition to the already described cost increases, interest rates will rise. Recent US tax cuts will increase borrowing requirements to fund budget deficits, thus increasing interest rates. In the longer term, one can expect to see international trade patterns and distribution networks adjust.  Supply sources and manufacturing locations may change.   As this happens, corporations will tend to invest in more highly automated and interconnected factories.

With over two decades of experience automating global supply chains through multiple economic cycles, Elemica sees several ways in which a digital supply network can help corporate board members and executives adapt to the erection of trade barriers:

  • Acquisitions and divestitures will be needed for new trading patterns and partners  
  • Digital supply networks reduce the cost and business disruption risk
  • Automated factories need to be inter-connected to their extended supply chains
  • Market share will increase due to 24x7 order capture and service differentiation
  • Working capital costs are optimized in real-time through trade-specific algorithms 
  • Margins are protected since business is more efficient and error-proofed
  • End-to-end visibility of demand, transport, and supply let you tune operations based on business conditions

Of course, in the end, the recent tariff proclamation may prove to be an example of the President’s negotiating style and countries may not retaliate.  Still, leaders should take this as a wake-up call.  Data is the new oil that lubricates the economy. Digital transformation creates the corporate engine for growth, innovation, and provides a better competitive position.  Board members need to ask their executives and division heads about their digitization levels with customers, logistics service providers, and suppliers.  Benchmark your digital penetration rates against your industry, and adjacent ones.  A highly digitized company is better positioned to take market share during both the economic contractions that tariffs may bring and economic expansions.   On the other hand, companies that have manual supply chains may have a hard time beating the competition.

 

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