Global supply chains are being reshaped by shifting tariffs, trade regulations and geopolitical uncertainty. In this ASCM Inland Empire webinar, Lisa Anderson, President of ASCM-IE, and Ed Knab, international trade and customs expert, explore the ripple effects of tariffs on manufacturers and distributors—and the strategies companies can use to stay resilient.

Background of Tariffs

We discussed the background of tariffs. The pandemic highlighted the need to create resilient supply chains. Since you are only as strong as your weakest link in your supply chain, it is essential to shore up and diversify your supply chain. Unfortunately, since China entered the World Trade Organization, the U.S. has gone straight down, and China went straight up in manufacturing. Since the competitive landscape became unachievable when playing by a different set of rules (financial, environmental, labor, and IP laws), companies started jumping ship from the U.S. to survive. Thus, the ability to manufacture critical items such as pharmaceuticals, defense, computer chips, infrastructure and related end-to-end supply chains (steel, critical minerals, etc.) was severely diminished. In addition, for every $1 invested in manufacturing, $2.67 is returned to the economy, and so this change had far-reaching impacts. 

Current State of Tariffs

Lisa and Ed discussed the current state of tariffs and the emerging trade deals. In essence, there is a baseline tariff in place, a tariff to curb drugs coming across the border, higher tariffs on industries needed in the U.S. such as steel, aluminum, and cars, and tariffs to encourage fairness (for example, addressing countries that impose trade restrictions on the U.S.). In the recent trade deals, the U.S. is gaining market access, investment commitments, and encouraging manufacturing, mining and shipbuilding. In addition, the di minimis loophole (small packages) has been plugged. 

Forecast for Tariffs

We provided our forecast for tariffs and their impacts on the supply chain. It is expected to average close to 20% overall with an emphasis on critical items supporting defense, pharmaceuticals, infrastructure, rare earths etc. Our expectation is for tariffs to be mildly inflationary although with the cost decreases in energy, deregulation, and taxes, it hasn’t shown up yet. So long as you will pursue substitutions and alternative brands, we do not expect significant shortages. Certain products and/or companies will struggle mightily depending on their end-to-end supply chain and their reliance of imports whereas other products and/or companies will thrive. In fact, we think it will be an opportunity for resilient, forward-thinking companies to succeed.

From a logistics standpoint, we expect challenges in Southern California. Since the L.A. and Long Beach ports are dependent on shipments from China that are shipped cross-country, as companies change sourcing, they will be less likely to ship through the Southern CA corridor as it will be more expensive than shipping direct. In addition, as companies reshore and nearshore to Mexico, other routes will gain as the ports lose volume. California remains a significant marketplace and so goods will flow into the state; however, they will not have to transfer through unnecessarily, adding cost to the process. However, these changes will take years to go into effect.

Foreign Trade Zones

Ed Knab also talked about foreign trade zones. They allow businesses to defer, reduce, or eliminate customs duties. Goods can gain immediate entry without paying tariffs; however, with the recent tariff rollout, there is no escaping tariffs overall. An advantage of foreign trade zones will enable you to take charge of the timing of when you take tariffs and no U.S. duties are paid if goods are imported into an FTZ and then exported to another country. In addition, businesses pay a lower duty rate if the finished product has a lower tariff than its imported components.  FTZs streamline customs processing, improve inventory control, enhance quality control, and extend storage options. In addition, they boost supply chain efficiency with streamlined supply chain operations, reduced transportation costs, and faster processing times. 

Proactive Strategies to Address Tariffs

Most importantly, we discussed proactive strategies to address tariffs and risks. In addition to the basics (gaining end-to-end supply chain visibility, backup sources of supply and diversifying supply chains), we discussed domestic manufacturing / reshoring and establishing regional supply chains / nearshoring. Another key strategy is to roll out advanced technologies such as 3D printing, robotics and artificial intelligence. In addition, forward-thinking executives are implementing predictive processes such as demand planning, SIOP (Sales Inventory Operations Planning), and advanced planning processes to better navigate changes in the supply chain and gain forward-looking strategies to meet customer growth goals with high service levels, profitability and cash flow.  

Watch as they discuss:

  • How shifting tariffs impact sourcing and cost structures
  • The intersection of trade policy and supply chain strategy
  • Practical steps to manage risk and maintain competitiveness

 

If you are interested in reading more on this topic:
What is SIOP?

Watch other videos from this webinar series at ASCM Inland Empire.