G20 is over: What is next for global supply chains?
We were all hoping for the best outcome of the G20 talks between Trump and Xi regarding the US-China trade war, but what did we get? Most of the reports coming from the meetings suggest not much. The trade war is likely to rage on.
Implications of the 2019 G2 Summit on Global Supply Chains
Same Old, Same Old
Trump and Xi did agree to restart the stalled trade talks, but no date or agenda was announced. Trump tweeted that the U.S. tariffs would continue. Xi promised to buy more agricultural products, although no specifics were announced. Same old, same old. It appears that nothing much changed at all from the December, 2018 announcements.
The existing 25% tariffs on $250 billion of Chinese goods, along with China’s retaliatory tariffs, will remain in place. The fourth US tranche of penalty tariffs has been again delayed, although the threat by the Trump Administration remains. The current tariffs placed on imports to the U.S. will continue to cause increased prices in America. Agricultural sourcing contracts between China and other nations such as Brazil, will continue to be developed.
U.S. Exports Continue to Fall
Meanwhile, U.S. exports of agricultural and food products fell 70.9% year over year in total from August 31 to April 30 compared to the same period last year, representing $10.6 billion of lost exports. Soybeans, which fell 80.7%, accounted for $8.7 billion of the decline, followed by sorghum, wheat and salmon. After the 2018 talks, the U.S. experienced a 31.7% year-over-year decline in 1Q 2019 exports to China.
U.S. industrial products for export to China continue to meet with resistance in China. The attitude toward the U.S. is becoming more and more negative as it is fueled by the Chinese government and Chinese press. The Chinese government is campaigning for Chinese companies to source and purchase components and finished goods from inside China and avoid American suppliers.
Apple has made a decision to move production of the Mac Pro desktop PC out of the U.S. and into China. Exporting the production of goods instead of finished products won’t help matters. This will ultimately mean more exports from China/ more imports for U.S. consumers who buy Apple products. As we have learned, supply chains involve complicated global decisions, often based on economic factors and market opportunities. Every company’s supply chains are unique, including Apple’s.
U.S. Export Regulations
President Xi and Trump also agreed to relax restrictions relating to U.S. component exports to Huawei, raising the technology agenda again for the future trade talks. These export restrictions have hurt trade and affected jobs in both countries. Trade compliance people at U.S. companies are feeling whip-sawed with go/no-go regulations, as are global supply chain sourcing professionals. All this churn is uncomfortable, and yet it is providing incentive for supply chain professionals to evaluate alternatives and inject flexibility in global supply chain planning. Alternatives and flexibility are good things.
When Will It End?
As we have seen in over the past two years, negotiations can fail at any point and U.S. penalty tariffs could be extended. The end of the trade war may come before the U.S. general election in 2020, in order for Trump to claim victory. But in the meantime, U.S. consumers are paying higher prices and our trading relationship with China will be forever changed.
