The trade war between the United States and China is a hot topic. If the current U.S. administration ends up finalizing a tariff increase on Chinese imports, there could be a drastic change in the global economy. In fact, experts are predicting that there would be a $600 billion decrease in GDP within two years.
As carriers in the logistics industry, it comes as no surprise that the U.S. tariff on Chinese imports could have far-reaching consequences within your business. After all, you’re aware of just how integrated and interconnected the supply chains of all the world’s economies are. It’s not uncommon for suppliers and producers to be located in different countries. These companies may have a great relationship and have an efficient and streamlined process established - but if a tariff is imposed that would make it more expensive for a producer to import its supplier’s parts, that relationship could suffer.
If the producer can’t get the parts it needs from its supplier at the same cost it always has, how will it continue to produce its products for its customer? What will the producer’s customer do if it can’t get the product? It’s easy to see the domino effect! Case in point: As a heavy Asian importer, LA’s freight volume dropped by 28% in the two weeks following the United States’ acceleration of Chinese tariffs at the beginning of May.
Considering such drops in freight volume, the carrier companies who transport products are not immune to the implications of an interrupted supply chain. If the customer for which the carrier transports product can no longer afford to produce because of upstream interruptions, there will be nothing for the carrier to transport. If there is nothing for the carrier to transport, there is no money to be made!
So, how can logistics professionals, those involved in both production and transportation, prepare for economic changes like this? Whether the interruption is caused by a tariff, natural disaster, or a mistake by someone up or downstream, the key to being prepared is to remain networked and flexible.
Companies need to ensure that they have processes and procedures in place that allow for adjustment on a moment’s notice. Having a great working relationship with one supplier or one customer is wonderful, but all associated parties should always be aware of industry and economic issues. There should always be a goal to develop and strengthen relationships with others. A strong foundation can make the difference in whether or not a company survives economic fluctuations and newly-issued regulations.