How should the global supply chain respond to the impact of US tariffs?

 

How should the global supply chain respond to the impact of US tariffs?

 

According to Xinhua News Agency, the US Customs and Border Protection announced on the evening of April 11th that the federal government has agreed to exempt electronic products such as smartphones, computers, and chips from so-called "equivalent tariffs".

 

In addition, although US President Trump announced on April 9th the suspension of some "equivalent tariffs", multiple other tariffs have already taken effect, and the global trade order still faces significant disruptions.

 

Jules Hugot, an economist at the Macroeconomic Research Division of the Economic Research and Development Impact Bureau of the Asian Development Bank, told First Financial Journalist that tariffs have had a significant impact on global trade flows. In the short term, companies may attempt to avoid tariffs by transferring goods through other ports, but the rules of origin complicate this strategy. In the long run, companies may diversify their investments in production facilities, but the uncertainty of trade policies will inhibit these efforts.

 

Global supply chain under tariff impact

 

At present, the United States has suspended some tariff measures, but existing tariffs are still putting pressure on global supply chains.

 

On the one hand, the US Customs and Border Protection announced that goods such as automatic data processors, communication equipment, display modules, and semiconductors are exempt from equivalent tariffs, applicable to all countries affected by "equivalent tariffs".

 

On the other hand, starting from April 5th, the 10% global benchmark tariff announced by Trump still applies universally; Starting from March 12th, the tariffs on steel and aluminum products in the United States will increase to 25%; Starting from April 3rd, the 25% tariff on automobiles and their components officially came into effect. Trump also stated this week that he will soon announce the details of drug tariffs and plans to release more arrangements on semiconductor tariffs on April 14th. In addition, the 232 clause investigation regarding copper and wood is still ongoing.

 

Louise Loo, Chief Economist of Oxford Economics China, told First Financial Journalist that compared to Trump's first term, this tariff policy leaves a very short window for supply chain adjustment. Continuous uncertainty may drive companies to extend their supply chains and diversify their layouts to reduce future risks.

 

For example, British car manufacturer Jaguar Land Rover and German car brand Audi have suspended the transportation of vehicles to the United States. Japanese video game giant Nintendo has postponed the pre-sale of Switch 2 in the US market. Scottish men's clothing brand Peter Christian announced a reduction in marketing expenses in the United States, while Italian clothing brand Diesel predicts that price increases are inevitable.

 

Domestic manufacturing companies in the United States are also under pressure. For example, car manufacturer Strantis has suspended production at its assembly plants in Windsor, Canada and Toluca, Mexico, resulting in the temporary closure of 900 jobs in Michigan and Indiana, USA.

 

Cleveland Cliff, a US steel company, announced that it will lay off 1200 employees at its factories in Michigan and iron mines in Minnesota due to declining demand for automobiles.

 

Delta Air Lines announced this week that due to global trade uncertainty, demand for domestic leisure and corporate travel in the United States has stagnated, and it will reduce capacity this year. The minutes of the Federal Reserve's March meeting showed that policy uncertainty has led many companies to suspend recruitment.

Many companies that are unable to transfer their supply chains face even more severe challenges. For example, Swiss military knife manufacturer Vickers has stated that producing outside of Switzerland will not be an option for the company, but the US market accounts for one-fifth of the company's global sales, and tariffs could hit profits hard, so it is studying the possibility of adjusting prices.

 

Market research firm TD Cowen analyst Steve Scala stated that pharmaceutical companies Novartis and Roche have fewer manufacturing plants in the United States and a higher degree of internationalization in the production of active ingredients, thus facing greater risks.

 

Evan Seigerman, a capital markets analyst at Bank of Montreal in Canada, is not optimistic about the role of tariffs in driving production back to the United States. He said that the global supply chain is complex, especially in the pharmaceutical industry, and transferring production is not an easy task. He expects that most large pharmaceutical companies may choose to "wait until the end of President Trump's term before considering more permanent production decisions

 

Finding trading partners outside of the United States

 

Faced with the impact of US tariffs, global economies are accelerating the exploration of new trade paths to reduce dependence on the US market.

 

Sunil Kaushal, Co Head of Emerging Markets at Standard Bank, stated that traditionally, free trade agreement negotiations "often take a long time to reach," but the current escalation of trade barriers is driving more bilateral negotiations with the goal of "reaching agreements faster.

 

In a statement on Thursday (April 10), European Commission President von der Leyen said that the EU would strive for "diversified trade partnership" and "contact with 87% of the world's trade economies". On April 12th, EU finance ministers also pledged at the Warsaw meeting to consolidate existing partnerships and negotiate mutually beneficial new agreements.

 

Specifically, von der Leyen said that the EU is exploring closer cooperation with the Comprehensive Progress Agreement of the Trans Pacific Partnership (CPTPP). The EU is also about to finalize trade agreements with Mercosur and Mexico. New Zealand Prime Minister Christopher Luxon has also proposed building a broader rules based trade alliance based on the CPTPP. In addition, negotiations between the EU and Australia are also expected to resume after next month's Australian elections, which were previously stalled in 2023 due to disputes over beef exports.

 

At present, the EU has momentum in free trade, and we have received positive signals from the European Commission that negotiations with many countries are progressing smoothly, "said Benjamin Dousa, the Swedish Trade Minister.

 

In addition, according to the Chinese Ministry of Commerce, on the afternoon of April 8th, Minister of Commerce Wang Wentao held a video conference with European Commission's Commissioner for Trade and Economic Security, Shevchovich. The two sides exchanged in-depth and sincere views on strengthening China EU economic and trade cooperation, and responding to the so-called "equivalent tariffs" imposed by the United States and Canada.

 

Shevchovich stated that the US tariffs have severely impacted international trade and had a serious impact on Europe, China, and vulnerable countries. The United States only accounts for 13% of global trade in goods, and the European side is willing to work together with other WTO members, including China, to ensure the normal operation of global trade. The European side attaches great importance to the economic and trade relations between Europe and China, and is willing to strengthen dialogue and communication with China to promote the expansion of two-way market access, investment, and industrial cooperation.

Outside of Europe, according to CCTV News, on the morning of April 10th, ASEAN held a special meeting of ASEAN economic ministers to discuss how to respond to the latest US tariff policies. According to reports, in recent weeks, government officials from multiple Southeast Asian countries have visited economies such as New Zealand, France, Brazil, and India to discuss strengthening trade relations.