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Will Trump's Tariffs Trump Trade?

March 9, 2018
Companies with lean, agile supply chains will best be able to respond to any negative fallout from Trump's import tariffs.

About a year and a half ago in this column, I wrote about the possibility of the Trump Administration derailing the global supply chain when I observed, “Trump ran on a populist, nationalist and protectionist platform to ‘make America great again’ with goals such as renegotiating and cancelling trade deals and trying to bring the manufacturing of items like cars and air conditioners home again. The potential impact of this would most likely be trade wars, rising prices of supplies and consumer products, longer lead times and higher manufacturing costs (if in fact many items we now buy overseas could even be manufactured with any efficiency here again).”

So, with the Trump Administration threatening a 25% tariff on imported steel and a 10% tariff on imported aluminum on all countries (not even targeting specific ones like China who have been accused of “dumping” steel at below cost), the question is what will the impact be?

Of course this would help the relatively small steel and aluminum industries (approximately 150,000 employees) but impact the prices, eventually to consumers, of products made with those raw materials like cars and beer cans, thereby potentially affecting millions of other jobs.

However, the real risks, as pointed out by the New York Times, are the potential ripple effects: “Affected countries may well retaliate by ordering tariffs on American goods, and they could carefully target goods to cause economic or political pain.” This might undermine the “entire system of global trade, which the United States helped build.”

Some companies are better prepared for this, as pointed out by Forbes, as companies that have lean, agile supply chains rely on continuous contingency planning, often with the aid of supply chain design software.

Scenario planning with sensitivity analysis can help supply chain executives and teams to determine their tolerance around cost drivers that they can’t control such as tariffs and retaliation.

They need to understand which metrics they need to monitor based on which metrics will have the most impact on making a network design less than optimal.

Once again, as the saying goes, “to be forewarned is to be forearmed.”

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