As trade conflicts between the United States and countries like China and Mexico escalate, U.S. companies are facing a growing number of supply chain challenges. From drastically heightened prices on imported goods to lengthy delays on inbound shipments, the repercussions of recent trade disputes have profoundly impacted the supply lines, profit margins, and overall growth of businesses across the country. Now, with potentially more trade disruptions on the horizon, how can on-demand warehousing provide an avenue for companies to navigate these obstacles without overburdening themselves or exhausting their capital?
- U.S. trade conflict disrupts global commerce. At the same time that trade disruption between the U.S. and China is being dubbed The New Cold War, the U.S. has threatened fresh tariffs against Mexico over immigration disputes. The potential for new tariffs against Mexico has cast further concerns over an already delicate situation for North American trade. And with potentially more tariffs upcoming, U.S. companies are analyzing their supply chains with growing unease.
- The costs of disruption mount. In early May, the Trump administration responded to a breakdown in talks with Chinese officials by increasing U.S. tariffs from 10% to 25% on $200 billion worth of Chinese goods. This was met with Chinese tariffs on $60 billion worth of U.S. products. And just recently, the U.S. announced the potential for new tariffs on Mexican imports. With Mexico and China comprising a significant portion of the U.S.’s suppliers, businesses across the country are scrambling to establish new supply lines and cope with steadily rising inventory costs.
- Repercussions for U.S. businesses. While many of the nation’s largest companies have made rapid headway in replacing tariff-laden suppliers with partners from other countries, this is a more difficult task for smaller businesses. As tariffs increase, it is small and mid-sized businesses that often lack the capacity to cope with added inventory expenses and shipping delays. They also lack the funding or expertise to quickly redirect their supply chains, either through new countries or entirely different regions, to circumvent tariffs. The result? As profit margins are sliced, companies are forced into laying off staff, reducing inventory levels, and delaying new growth projects. These sacrifices are made just to maintain daily operations until the conflict is over or alternative supply routes can be established.
- How on-demand warehousing protects against supply chain disruption. On-demand warehousing allows businesses to quickly scale their inventory levels up or down to cope with sudden economic shifts or trade disruptions. This means that as impending trade conflicts are identified, businesses can quickly inbound additional inventory from their foreign suppliers and stock it in U.S.-based warehouses with relative ease. This effectively allows domestic businesses to avoid tariff hikes on imported goods until normal trade practices resume or new suppliers can be onboarded. And, because on-demand warehousing does not require inventory minimums, domestic inventory could be scaled back down at the conclusion of any trade conflict as-needed to resume standard operations.
U.S. trade conflict disrupts global commerce
Over the course of the past year, a growing shadow of uncertainty has been cast over the supply chains of organizations around the world. Although supply chain interruptions can arise out of anything from a weather storm to a traffic jam, the type of disruption heavy on the minds of companies today revolves around escalating trade conflicts between the U.S. and countries like China and Mexico.
At the same time that trade animosity between the U.S. and China is being dubbed as The New Cold War by some economic pundits, the U.S. has also gone on the offensive in their trade tactics south of the border. The potential for new tariffs against Mexico has cast further concerns over an already delicate situation for North American trade, and as a result, U.S. companies are beginning to analyze their supply chains with growing unease.
The costs of disruption mount
As recently as January 2019, a U.S.-based survey of over 300 corporate and banking professionals revealed that trade conflict was not a top concern domestically. At the time, there was still uncertainty over various U.S. trade agreements, but efforts between all involved parties looked to be progressing in a favorable manner. However, the climate can change without warning, and the past several months have seen a sudden escalation in several major trade disputes.