Will trade war changes to supply chains be long lasting?

international trade

By Cate Hull
Word out of Washington this week that the United States may impose tariffs on Mexico as a lever over immigration control has sent shockwaves through financial and supply chain networks.

Already embroiled in a trade war with China, additional trade battles between the United States and Mexico can only mean more impacts to already shifting international supply chains.

Online manufacturing platform Fictiv recently released its fourth annual State of Hardware Report that shows companies are encountering increasing supply chain and resource constraints as a result of tensions between the U.S. and its trade partners, especially China.

Dave Evans, CEO of Fictiv, says the impacts are far-reaching.

“We’re seeing broad impact across different industries. The most recent threat is focused on the automotive industry, but we’ve also seen tariffs on capital goods made of materials like steel and aluminum. Capital goods are intermediate products that are used in producing other goods, rather than being bought by consumers. Tariffs on capital goods have wide ranging impact across many different industries, as they impact a company’s ability to build products cost-effectively,” he said.

Evans said his report shows that 62 percent of respondents say tariffs have increased their material and component costs, and 19 percent have experienced product launch delays.

Opening another trade war battlefront with Mexico will only increase the tension and create lasting damage, according to Mary Lovely, a Syracuse University economist and senior fellow at the Peterson Institute for International Economic.

“There’s definitely lasting damage that has been done,” said Lovely. “It’s not going to mean the end of the world tomorrow, but it’s death by a thousand cuts. How competitive is America going to be in 10 or 15 years?”

As companies shift away from China because of tariffs, countries such as Vietnam could reap long-term benefits.

Pham Hong Hai, CEO of HSBC Vietnam, said transitioning supply chains is a gradual process.

“The changes in global trade are causing businesses to revisit their supply chain investment and capacity strategies, but we have yet to see this convert into widescale shifts to Southeast Asia, South Asia or other parts of the world. Rather than see a widescale shift to ASEAN, multinational companies are looking at multiple supply chain strategies with a mixture of localisation, offshoring and re-shoring activity emerging,” he said.

Hai said Vietnam’s strong production capabilities will make a difference.

“Over the past decade, ASEAN and Vietnam have been perceived as a strong production option for multinationals given its role within existing supply chains, growing consumer base, and strong trade and investment ties,” he added.

Electronics manufacturers could be among the first to feel the full brunt of the trade war. The industry is perhaps uniquely global: Chips made in Oregon or Texas are shipped to a plant in Mexico to be attached to circuit boards made in China alongside capacitors made in Vietnam. It is not unheard-of for a product or its components to cross the Pacific three or even four times before showing up on retail shelves.

American companies sold more than $200 billion in computers and electronic goods to foreign buyers last year, including $18 billion to China. And while that was a small part of the United States’ $2.5 trillion in total exports last year, the broader tech sector has accounted for an outsize share of economic growth in recent years.

Cate Hull is the CEO of FreightExchange, a freight and logistics company based in Sydney.