Daily Management Review

Companies Forced To Consider Supply Chains Reorientation Due To Trump Tariffs


Given the treat that the era of open trade policy coming to an end, all companies ranging from large global manufacturers such as Harley-Davidson to small tech startups are now trying to rearrange their supply chains which were designed for free trading.
Those companies that had initially adopted a wait-and-see approach before taking any action to adjust their business from the changing trading policies are now scrambling to readjust with U.S. President Donald Trump striving to change the status quo of global trade and free trade.
For example, U.S. motorcycle maker Harley Davidson warned of accumulative losses because of retaliatory EU tariffs on Monday and announced the shifting of some of its bike production out of the United States that caters to exports into the EU to avoid the tariffs.
It was about a week ago that its 2018 profits forecast was cut by Mercedes-Benz maker Daimler AG because of growing trade tensions. And the German car maker BMW has said that it is contemplating “possible strategic options” because of the increasing trade tensions between China and the United States.
Harley is the latest company that has found itself hit because of the “tit-for-tat” tariff retaliations against Trump’s attempt to reshape global trade rules and pursuing of his “America First” policy.
higher costs of raw materials because of the metal import tariffs imposed by Trump forced a drop of 230 basis-point fall in the gross margins of its American business in the first quarter by office furniture maker Steelcase Inc. the company further said that it expected profits to remain under pressure in the next quarter or two despite the fact that the company had increased prices earlier this month which is its second increase within a space of four months.
“A manufacturer can no longer assume that the direction of trade policy is towards freer and freer trade over time,” Dustin Burke, a partner at the Boston Consulting Group, told the media last month.
1 percent of global trade would be impacted by the U.S. tariffs along with comprised with the retaliatory tariffs that has already been imposed or is being planned to be imposed by its trade partners, according to analysts at Morgan Stanley.
Many companies are still not ready to take corrective action which could take years to pay out because the manner in which the trade dispute between the US and China and other trading partners would be resolved is not yet clear.
“If you tell us what the rules are, we’ll determine the best way to position the capacity and to go about the investment,” said Michael Lamach, chief executive of heating and air-conditioning product maker Ingersoll-Rand Plc. “What you need is certainty around the rules.”
It is not easy to shift complex and decades-old supply chains to other countries or facilities.
While some companies have contracts that had production in supply chains about six to nine months before delivery, there are other companies that have multi-yearly contracts with suppliers. And yet for other some companies such as medical device firms, regulatory approval is necessary before changing suppliers.
Therefore, while companies would like to reorient their supply chains to suit the current tariff regime ushered in by the US and followed up by many of its trade partners, it would not be an easy task for them to do so.