What Happens Now? Tariffs Impacting Manufacturing
The US government introduced tariffs as a way to help the US compete more equally on a global basis. The idea is to increase the cost of imported goods so that American manufacturers can compete more effectively. The problem is that most US manufacturers rely on imported parts to support their own production. In addition to the US imposing tariffs on foreign goods, countries have reciprocated and imposed tariffs on US exports.
Rising trade tensions between the United States and the rest of the world could cost the global economy $430B the International Monetary Fund has warned. Whether these tariffs escalate into a global trade war or not, they are affecting an increasing number of industries over the rest of the year and into next. Manufacturers need to look into dynamic supply chain strategies to survive in the changing environment.
The steel and aluminum tariffs have been felt across industries that are dependent on these products, including automotive, construction, machinery, appliances and beverages. The automotive industry comprises over 25% of the total US steel consumption and 40% of the aluminum. Some companies are responding by moving operations offshore or to the Southeastern US, where the cost of living and labor is much less compared to the rest of the country.
Now the US government is talking about imposing tariffs on an additional $200 billion worth of goods from China. Last week over 400 companies spoke at the United States Trade Representative hearing, saying that the tariffs would hurt their business, primarily because, “The US is no longer equipped to produce many materials that they depend on for their products. The rise of global supply chains has shifted the bulk of manufacturing and production outside the United States, leaving companies no choice but to rely on foreign materials, including those from China.”
If US manufacturers increase prices, foreign competitors gain a leg up. So, US producers have a choice – raise prices and lose market share or keep pricing consistent, but lose profitability. What can these companies do?
The answer is to look at other areas of the supply chain for cost savings, such as transportation processes. Using a transportation management system that allows transportation bids to be reviewed side-by-side helps shippers pick the best carrier for their needs. With this knowledge, shippers can work on establishing great relationships with their carriers. By communicating early via technology, and leveraging tracking capabilities, shippers can give carriers the information they need to better plan routes. These measures can lead to becoming a preferred shipper, which opens up access to scare capacity.
Preferred shippers can negotiate better rates, which will keep process down to offset the price increase of tariffed goods. By leveraging data collected across the supply chain to monitor the performance of partners, shippers can optimize pricing and mitigate risk.