Over the past year, geopolitical tensions around the world have intensified due to the 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 imports of Chinese electric vehicles due to growing concerns that the Chinese government is subsidising domestic manufacturers.
In turn, China retaliated with an anti-dumping investigation into EU brandy imports, while also probing pork and dairy imports from the bloc, Euronews reported.
Tensions between the EU and the US over tariffs have also intensified and are expected to continue to rise as new US President Donald Trump takes office. The Republican has already expressed his dissatisfaction with EU tariffs on food, cars and agricultural products imported from the US.
He has also threatened to impose a general duty of between 10% and 20% on all imports from the EU when he takes office.
Similarly, trade relations between the US and China are also at an end, mainly due to long-standing disagreements over unfair trade and economic practices, as well as intellectual property theft.
Kevin O'Mara, principal researcher and co-founder of Zero100, an EU research platform working towards zero carbon, sheds more light on how these changing trading conditions are likely to affect supply chains and how they are adapting to them.
O'Mara will speak about the most pressing issues of global trade at the World Economic Forum (WEF) in Davos, Switzerland.
An escalating global trade war could cause several pandemic-like lags in supply chains, which could lead to their complication and delay. The cost of importing, exporting and transporting goods around the world could become much more expensive, which in turn would lead to higher product prices for consumers.
Producers could be forced to find new suppliers and customers, and be restricted to trading only within certain geopolitical blocs, depending on how far the tariffs go.
As for how a deepening global tariff war could affect specific supply chains and industries in markets such as the US, UK, Europe and Asia, O'Mara said:
"The escalating trade war between the US and China is likely to isolate critical parts of some strategic supply chains, such as electric vehicles, solar energy and semiconductors. This should raise costs for all countries as companies in these chains need to invest domestically to maintain reliable supplies."
"The situation gets even worse if retaliatory tariffs and other industrial actions start to intensify. However, isolated players, such as perhaps the UK, could reap paradoxical benefits as overcapacity in certain places, most notably China, could lead to an oversupply of certain materials such as nickel or components such as semiconductors," the economist said.
"Overcapacity suppliers, such as China-based manufacturers, may have to dump products in third countries at low prices. This may help some industries that use these materials and components, but hurt local upstream suppliers of the same materials. Trump's tariffs may prove to be a blessing in disguise if they encourage supply chain leaders around the world to localize or at least regionalize their supply chains. The benefit of this shift is to ensure more sustainable but lower carbon footprint supply chains around the world, rather than sourcing globally and shipping tens of thousands of miles as was the norm during the 1930s of US and Chinese-led globalisation," he added.
Several companies are preparing their teams to better handle supply chain issues by investing in training, improving communications with suppliers and customers, and re-evaluating their current supply chain designs.
In terms of how companies are building more resilient teams to better deal with supply chain politics, O'Mara said:
"Most companies have developed much more quickly their ability to model the scenarios that could happen in the event of a particular tariff. Their supply chain planning tools and rapid problem-solving teams have evolved quite a bit since the COVID crisis."
"As a result, very few of them - if any - are actually stockpiling or significantly shifting supply commitments to new countries in response to the latest rounds of tariff discussions. Diversification of supply, particularly from China, has been underway for years and so, frankly, most global companies are actually quite prepared to deal with a volatile tariff environment," the analyst stressed.
Artificial intelligence (AI) and robotics have come a long way to help supply chains improve operational efficiency as well as reduce physical workload. They can help predict demand in real time and ensure that companies manage inventory better as well.
In relation to how AI and robotics are transforming supply chains, O'Mara states:
"100% digital supply chains will allow businesses to be significantly more responsive and flexible when dealing with tariffs, increasing their efficiency and eventually leading to greater use of trade restrictions, industrial policy and other forms of tariffs."
"Supply chain executives are focused on how AI moves from pilot and experimental activities to large-scale deployment. The big payoff is based on radically improving productivity to address labor shortages and rising costs," O'Mara added. | BGNES
