In March I wrote a blog entitled, Stormy Seas Ahead Resulting from Trump's Tarriffs? which identified three likely results: 1) a decline in United States economic activity, 2) increased working capital costs, and 3) changes in international trade patterns and adjustments in distribution networks.
Some recent headlines are aligned with my March predictions:
Business Insider reported on July 9, 2018 that “US consumers and businesses are already starting to feel the pain from Trump's trade war, and the worst is yet to come.”
Bloomberg reported on July 10, 2018 that the “Chart of Century Gives Powell Gloomy Glimpse of Trade-War World”. This article states that higher prices and faster inflation (which equates to higher interest rates and increased working capital costs) could be in the cards now that tariff battles threaten to upend global supply chains.
The Wall Street Journal reported on July 10, 2018 that the “Tariff Dispute Threatens Exports of American-Made Cars” and argues this will have a broad impact on supply chains.
With over two decades of experience automating global supply chains through multiple economic cycles, Elemica has identified several ways in which a digital supply network can help corporate board members and executives adapt to the erection of trade barriers:
- Digital supply networks reduce the cost and business disruption risk inherent in acquisitions and divestitures resulting from new trade patterns and partners.
- Automated factories will need to be inter-connected to their extended supply chains.
- Market share can increase due to 24x7 order capture and service differentiation.
- Working capital costs can be optimized in real-time through trade-specific algorithms.
- Margins can be protected since business is more efficient and error-proofed.
- End-to-end visibility of demand, transport, and supply can let you tune operations based on business conditions.
Of course, in the end, the escalating trade war may prove to be an example of the President’s negotiating style. 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 and provides a better competitive position. Board members need to ask their executives and division heads about their automation levels with customers, haulers, 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. All the other companies that have manual supply chains may have a hard time beating the competition.