Table of Contents
Rising tensions between key world players have led to increasing concerns of a global trade war, which would also hit Europe. Kevin O’Marah from community research platform Zero100 is speaking about the world’s most pressing global trade issues at the WEF at Davos.
ADVERTISEMENTGeopolitical tensions across the globe have escalated in the last year, driven by ongoing conflicts in the Middle East and the war between Russia and Ukraine.
The threat of a potential global tariff war has worsened over the past few months, after the EU imposed increased tariffs on Chinese electric vehicle (EV) imports because of rising concerns of the Chinese government subsidising domestic manufacturers.
In turn, China has retaliated with an anti-dumping investigation into brandy imports from the EU, while also probing pork and dairy imports from the bloc.
EU-US tariff tensions have heated up as well, and are expected to continue doing so as the new US president Donald Trump comes into office. Trump has already expressed his discontent regarding EU tariffs on food, cars and agricultural products imported from the US.
He has also threatened to impose a blanket tariff ranging anywhere between 10% and 20% on all imports from the EU when he comes into office.
Similarly, US and China trade relations are teetering too, mainly due to longstanding disagreements about unfair trade and economic practices, as well as intellectual property theft.
Kevin O’Marah, the chief research officer and co-founder of Zero100, a community research platform working towards zero carbon, sheds more light on how supply chains are likely to be impacted by these changing trade conditions and how they are adapting accordingly.
O’Marah will be speaking about the world’s most pressing global trade issues at the World Economic Forum (WEF) in Davos, Switzerland this year.
How could an escalating global tariff war impact supply chains?
An escalating global trade war could cause several supply chain backlogs, similar to the pandemic, which could lead to them becoming more complicated and slow. The cost of importing, exporting and transporting goods across the world could become much more expensive, which in turn, would lead to higher product costs for consumers.
Manufacturers could be compelled to find new suppliers and customers, as well as be limited to trading only within certain geopolitical blocs, depending on how far tariffs go.
Coming to how a worsening global tariff war could affect specific supply chains and industries in markets such as the US, UK, Europe and Asia, O’Marah said: «An escalating trade war between the US and China is likely to isolate critical parts of certain strategic supply chains like electric vehicles solar power, and semiconductors. This should raise costs for all countries as companies within these value chains need to invest domestically to maintain reliable supply.
«It gets worse if retaliatory tariffs and other industrial actions start to escalate. Isolated players, like perhaps the UK might paradoxically benefit however as overcapacity in certain places, mostly China, might lead to excess supply for certain materials like nickel or components like semiconductors.
«Over capacity suppliers like manufacturers based in China may need to dump products in 3rd party countries at low prices. This could help some industries who use these materials and components but hurt domestic upstream suppliers of those same materials.
«Trump’s tariffs could be a blessing in disguise if they encourage supply chain leaders around the world to localise or at least regionalise their supply chains. The benefit of this shift is to provide more resilient but also lower carbon footprint supply chains all around the world, rather than sourcing globally and shipping tens of thousands of miles As has been the norm for 30 years of US/China-led globalisation.»
How are companies building teams to handle the politics of supply chains?
Several companies have been preparing their teams to better handle supply chain issues by investing in training, improving supplier and customer communications and reevaluating their current supply chain designs. Predictive supply chain analysis tools have helped with this as well.
ADVERTISEMENTComing to how companies are building more resilient teams to better deal with the politics of supply chains, O’Marah said: «Most companies have developed a much faster ability to scenario model what might happen in the event of a specific tariff. Their supply chain planning tools and teams for quick problem solving are fairly evolved after the COVID and supply chain resilience crisis of the last few years.
«As a result, very few – if any – are actually stockpiling inventory or significantly shifting supply commitments to new countries in response to the latest rounds of tariff discussions. Sourcing diversification away from China in particular has been in motion for years now and so, frankly, most global companies are actually quite prepared to deal with a volatile tariff environment.»
How is artificial intelligence (AI) and robotics transforming supply chains?
Artificial intelligence and robotics have gone a long way in helping supply chains improve their operational efficiency as well as reduce physical workloads. They can help predict real-time demand and ensure that companies manage inventories better as well.
Referring to how AI and robotics are transforming supply chains, O’Marah pointed out: «100% digital supply chains would allow business to be dramatically more responsive and agile dealing with tariffs which would increase their effectiveness and possibly lead to more widespread use of trade restrictions, industrial policy and other forms of tariffs.
ADVERTISEMENT«Supply chain leaders are focused on how AI is moving from pilot and experimentation to scaled implementation. The big payback is based on radically improving productivity to cope with labour shortages and rising costs.»
