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How Is Your Company Hedging the Increased Risk Tariffs Bring to Your Supply Chain?

In September, the U.S. placed $200 billion worth of tariffs on Chinese imports–on top of the $50 billion worth already taxed earlier this year. As a result, nearly half of Chinese imports into the U.S. face levies. With the new tariffs the U.S. has added to international trade deals, having an agile and flexible supply chain is now more imperative than ever.

The second wave of tariffs, which went into effect on Sept. 24, started at 10 percent and will remain at that level for the foreseeable future. In response, China could incorporate tariffs onto $60 billion worth of American goods. These changes could upset both the costs and logistics of global supply chains.

With New Tariffs, Supply Chain Instability and Uncertainty are Imminent

Further adding to the instability of global markets, the U.S. plans to renegotiate existing trade deals. Not only has the U.S. placed tariffs on adversarial countries like China, but allies such as Canada have also incurred new tariffs.

With high tariffs come high import costs, which could decrease consumers’ spending. High import costs could significantly impact supply chains leading to diminished corporate bottom lines.

Tariffs’ ripple effects on the global economy indicate a pressing need to find ways to combat these changes and reduce the impacts of possible negative outcomes.

Companies using analytics to identify supply chain optimization areas find it easier to pivot more quickly. This flexibility can minimize negative effects and give companies a competitive advantage compared with those who are not utilizing analytical tools to hedge supply chain risks.

Imposed Tariffs are Causing Retaliation from Other Countries

In the midst of a North American Free Trade Agreement (NAFTA) deal, the U.S. has imposed steel and aluminum tariffs for imports from both Canada and Mexico. The aim of the tariffs is to protect domestic steel and aluminum by raising the price of imported materials, thereby making U.S. products more competitive.

Despite some agreements between the countries, the tariffs are still in place. Recently, though, Canadian and Mexican representatives have reported a higher likelihood of impending resolutions to these trade negotiations.

In addition to affecting Canadian and Mexican imports, the 25 percent steel tariff additionally creates $50 billion worth of tariffs on Chinese goods. As a result of these tariffs, freight and shipping data have been trending toward a slowdown over the last few months.

In fact, after the U.S. imposed additional tariffs, import volumes notably decreased and Chinese steel and aluminum imports dropped by more than half, compared with last year’s numbers.

Since the U.S. tariffs began, most countries have quickly responded with retaliatory tariffs, placed on many agricultural goods, American cars, seafood and alcohol, as well as high-value goods such as satellites and rocket parts. These tariffs are already affecting the economy and having lasting impacts on supply chains. With these tariffs, end-to-end and real-time visibility are imperative for future success and growth in business.

Tariffs’ Ripple Effects Influence Global Supply Chains

In developed markets, global value chains (GVCs) have historically granted access to more competitively priced products due to economies of scale. Conversely, in emerging markets, GVCs have offered a fast track to industrialization.

Together, these GVCs helped lift productivity growth and per capita income levels–and ultimately fueled global GDP growth. For better or worse, however, GVCs accentuate business cycle swings.

The ripple effect these tariffs cause can have unpredictable effects on the economy, as well as shipping and supply chains. Due to these tariffs, many companies are expecting decreases in profits.

Additionally, the tariffs are likely to cause transportation and equipment costs to increase and pose economic consequences including a decrease in logistics jobs as a direct result of decreases in imports from China.

Tariffs affect costs significantly in the short term, which is imperative to consider for the next several years, or possibly longer. Despite some new plants opening in the U.S., it is still unclear how these tariffs will affect the prices of steel and aluminum long-term:

Amid this uncertainty, being prepared with a flexible and reinforced supply chain logistics plan is highly important, especially for the industries the tariffs directly affect.

On the surface, tariffs affect the global economy and trade relations. Looking more deeply, these implemented changes also have drastic effects on supply chains for both government and commercial shippers. In fact, even though some companies are cutting costs for their supply chains, the reality is those cuts alone cannot solve the complex problems that arise with new tariffs. This could disrupt supply chain networks and incur additional costs.

Use Real-Time Visibility and Analytics to Combat Tariffs’ Negative Effects

Imagine a high-value shipment of a steel-containing product goes out. With Savi’s real-time visibility and analytics, it is possible to see the shipment’s journey and discover any challenges or potential delays early enough to prevent or mitigate disruptions. Supply chain planners can then refine future shipment plans and routes to ensure their highly valuable goods are not damaged or misplaced.

Although we cannot predict every effect of current and future tariffs, it is possible to minimize business risk using current and historical data and predictive supply chain analytics.

The ability to prepare for uncertain times starts with knowing as much about the supply chain as possible. Derived from collecting all available data points, these insights identify both weaknesses and areas in need of optimization.

“The value of knowing” is Savi’s tagline because the more you know, the better equipped you are to become a best-in-class company. Our customers have the tools to combat possible negative impacts of U.S. tariffs because they “know” their supply chain, through which carriers perform best in which routes, which distribution centers are the most efficient and access to ETAs they can trust.