Managing Supply Chains in a Tariff-Fueled Trade War
Business leaders grappling with the implications of new U.S. import duties on their value chains need to closely monitor shifts in policy and prioritize visibility into supply networks.
Alice Mollon/Ikon Images
The U.S. retreat from globalization and free trade via a sweeping new tariff regime has plunged supply chain planning into uncertainty. Business leaders seeking to mitigate the impacts will need to keep abreast of changes in the rules and ensure that they have complete visibility into all levels of their supply chains. Closely examining costs and trade-offs, working with supply partners, and using up-to-date supply chain network design methods are among the critical activities that can help.
Companies routinely retune their supply chains in response to market changes, but the gyrations caused by the Trump administration’s on/off tariff regime are far from routine. How do supply chain planners address the immediate challenges, and what are the long-term implications they should consider?
Many larger companies can cope with the new level of uncertainty they now face. When the tariff policies were announced, I participated in a gathering of chief supply chain officers from some of the world’s biggest companies. The consensus among the participants was that managing the new tariffs requires a lot of work, but having already endured COVID-19 and various armed conflicts worldwide, they regard this as just “another day in the office.” These market leaders will quickly re-optimize their networks, relationships, orders, products, contracts, routes, and prices, mitigating the worst impacts of the tariffs.
Still, mitigating the impacts completely, or even significantly, will be challenging. This is particularly true for companies that do not possess larger rivals’ supply chain planning resources. For many enterprises, steering a course through these treacherous tariff waters is a matter of survival.
While each enterprise’s approach to the challenge is unique, some key elements are common to most strategies. Companies should:
Watch the changing landscape. While new announcements about tariffs come from the White House, the full executive orders describing how the tariffs work appear in the Federal Register. These details are important for understanding which product families and derivatives are taxed, and by how much. Companies should be part of the public comment period and the final rules, which may change after the public comment period. Furthermore, the U.S. Customs and Border Protection agency’s web page on the tariffs may still include somewhat different details that can be exploited to minimize their cost.
Decide who shoulders the burden. Companies must decide whether to force their suppliers to reduce costs, cut their margins, or pass the costs to consumers through higher prices. The likely solution will be a combination of all three, depending on the nature of the market. In today’s politically charged environment, these decisions must also factor in potential government intervention. To wit, China recently warned Walmart against forcing suppliers in that country to absorb the cost of tariffs.