trouble on the horizon?

Trump, trade and logistics

AEB Managing Director Markus Meissner looks at the tariffs being levied by the U.S. president, the disputes arising from them and how it all may impact supply chain and logistics.

If Donald Trump is waging a trade war with China, it may be more potent on Twitter than anyplace else. So far  the measures enacted by the U.S. president have resulted  in a rush of business between the two largest economies on earth as China’s companies have moved to beat the deadlines for White House tariffs. 

The result: A record for the month of August as China’s trade surplus actually climbed 10 percent from July figures to just over $31 billion. And that total is actually 20 percent higher than it was in August a year ago.

What is going on here? Trump’s volatile trade policies have China’s businesses scrambling to get their goods into the U.S. before they are tagged with hefty tariffs. At the same time, U.S. companies, according to some economic analysts at least, are being slow to react because they fear Trump’s shoot-from-the-hip policy changes may dampen the confidence of American consumers who resist major purchases when the economy’s health is in doubt.

Markus Meisser blog
Markus Meisser blog
Markus Meisser blog

Trump has been on Twitter and elsewhere saying he will continue to escalate his fight with China and its leadership has warned that it is prepared to react. This week Trump threatened $200 billion in tariffs on Chinese goods. We may soon see a full-scale trade conflict between the two nations and if we do you can expect it to impact economies big and small around the globe.

So how will all of this impact the supply chain and the logistics market? Recently, a German logistics think tank, ‘Logistikweisen’, asked community experts exactly that question. Their survey found that many believe:

  • The current trade imbroglio has had only a limited impact on just a few products and industries and remains manageable. That may change though as Trump and China forge ahead. Today’s supply chains are highly integrated and cross-linked, and a long-term showdown will take its toll.
  • How individual businesses are affected depends on where they do business, who they do business with and their own competitive position. The members surveyed felt that a company’s global footprint will ultimately matter in this environment though exchange rates may factor more than ever into a firm’s bottom line. For example, a weakened RMB may compensate somewhat for any increase in taxes.
  • Supply chains, though robust and stable now, will become more difficult to manage as the trade war digs in. That could mean an imbalance in capacities and situations where companies see a surplus of some products and a shortage of others. 
  • And finally, the members felt that all of this will lead to a growing uncertainty in the stability of the economy and a fall in economic outlook. That will lead to reduced investments and a skittish consumer.
Markus Meisser blog
Markus Meisser blog
Markus Meisser blog

It’s important to note again that to date the impact of the disputes between the U.S. and China have not had a severe impact on most countries and on the supply chain and logistics market. 

But clearly the signs are there that trouble is on the horizon. Japan’s car makers, for example, have already indicated they will pull production from China and move it elsewhere if the war deepens and more tariffs are levied. This could hurt China’s economy. For the U.S., imports from China will decline and there will be no ready replacement for those products.

My take? Trump is walking on a very thin line. Instead of getting more jobs and winning wider profit margins on American products abroad, there is a good chance he’ll end up with higher prices for U.S. consumers, supply short falls and a negative impact on the lives of Americans – including those that put him into office with dreams of a greater future.