President Donald Trump made international trade a centerpiece of his campaign, and his early decisions have shown he will spend the early stages of his presidency acting on those campaign promises.
The economics of globalization are intricate and prone to widely varying interpretations. Based on their collective interpretations, those in the Trump Administration have the potential to dramatically alter the cost equation for the supply chain stakeholders, including manufacturers, importers and exporters.
Here are just a few ways the new administration could potentially impact businesses that rely on the international supply chain.
Under President Trump, the United States has already withdrawn from the Trans Pacific Partnership (TPP) trade deal, and the president has called for a renegotiation of the North American Free Trade Agreement (NAFTA).
For businesses that manufacture products in China or Mexico, troubling times appear to be on the horizon. Also, companies that source parts and raw materials from these countries can expect to see their costs rise significantly, while finished goods might be stranded overseas. Concurrently, sales to these countries could become sluggish or stop altogether as trade negotiators try to navigate uncharted waters. Furthermore, protectionism will not take place unilaterally, as other countries will likely respond in kind.
Ultimately, we could see more local-for-local manufacturing, with more U.S. plants making small lot sizes and heavily leaning on automation.
Going forward, supply chain managers need to account for high risks in internationally sourced materials. Global product platforms could be of some assistance as R&D spending can be pooled among smaller operations closer to end markets.
President Trump has promised to significantly cut the business tax rate, but whether this could be paid for without leading to inflation is unknown. Either way, the ramifications for supply chain stakeholders are noteworthy.
U.S. taxes are presently among the highest in the world. Attempts to bypass them have led to the divorce of intellectual property from physical products, causing earnings to be stranded overseas. If Trump can cut the business tax rate by around 20 percent as he has promised, it could permit businesses to pick their location based on consumer markets, as opposed to on tax optimization. The shift could streamline network design for operations like planning, procurement and product development.
President Trump has promised to crack down on illegal immigration while moving forward on reforming U.S. immigration policy. For industries with a heavy dependence on cheap imported (or illegal) labor, such as agriculture, changes will likely drive up costs, which will be passed on to buyers and consumers. Smaller specialist food businesses may gain advantage as premium products are far less price-sensitive.
For highly technical industries, immigration policy changes might be helpful, especially if a fast-track immigration system is set up for high-skill technical jobs. In this instance it may be worth contemplating the proactive recruitment of international talent with automation and/or information analytics experience.
In uncertain times, companies need dependable solutions. At ZDA, we pride ourselves on consistently supplying our supply chain clients with the talent and services they need. Please contact us today to learn more about how a top supply chain recruiter can help your business.