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Global logistics in turmoil as Trump’s tariffs are rolled out
The US President, Donald Trump used an executive order to unleash his programme of import taxes this week. The baseline tariff is 10% and will apply to all imports from the UK. There are heavier, custom tariffs to target the, “worst offenders” including 20% for the EU and 54% for Chinese imports. He has also singled out the car industry with a 25% tariff on all foreign-made automobiles.
The shockwaves are already being felt across global supply chains. Multinational companies are scrambling to adopt new business strategies to minimise the financial impact of tax changes.
Shifting Supply Chains
There will be a heavy price to pay on some well-established trade routes when the tariffs come into force on the 9th of April. Products and parts made in China will be hardest hit. But it’s not just China. Vietnam (46%), Thailand (36%), Cambodia (49%) and Japan (24%) will all be affected as Trump targets Asian industry.
Businesses may seek to diversify their supply chains to reduce their reliance on specific countries or regions, which could lead to increased complexity and costs. Switching suppliers or manufacturing to the US or lower-tariffed countries will save on import duty but could mean higher operating costs. Limiting US tax liability whilst finding economically viable solutions will be a delicate balance for global businesses.
Location, Location, Location
America’s import tariffs are determined by geography so moving production to lower-taxed countries or back to the US will reduce their tax liability. Switching production from Thailand to Singapore would see a reduction in these costs from 36% to 10%.
This also means there could be opportunities for UK businesses, as our Head of Fulfilment, Gary Bevan explains, “Increased costs are always worrying, but the UK has the lowest rate of US import tax, it’s half that of Europe’s. Businesses that can leverage that gap will benefit in the long term.”
Increased Uncertainty
However, if there is one thing that businesses and stock markets do not like it is uncertainty. If the trade wars escalate it could lead to regional trade blocs and agreements, as countries seek to protect their economies from external shocks. This uncertainty makes it difficult for businesses to plan and invest.
The OECD has warned that trade wars are already slowing global growth and fueling inflation, highlighting the economic impact of trade tensions. The increased costs are likely to be passed on to consumers in the form of higher prices for goods and services. Higher prices could lead to reduced consumer demand, further impacting businesses and the world economy.
However, the trade wars play out global logistics will need to adapt. As businesses are forced to find alternative suppliers and routes, the risk of supply chain backlogs and delays is high, and it will be the businesses that adapt that survive.
