Tariffs, Trade, and Supply Chain Management

Are tariffs a powerful tool for shaping policy and protecting domestic industries? Or are they an example of governments trying to regulate business decisions and interfere with free market capitalism?

Either way, they are an emerging risk that supply chain managers need to deal with.

Just a few years ago, it seemed like most countries around the world were advocating for free trade. Advanced economies would focus on high-value industries, and buy their low-cost commodities and manufactured goods from developing countries. In turn, developing countries would enjoy access to large, global customer markets that would buy their products. The mantra could have been, "more trade is more better, for everyone". And the whole process was enabled by cheap energy and efficient logistics.

But today, the tide has suddenly shifted. Trade barriers are being erected, rather than eliminated.

That's bad news for supply chains, because tariffs and quotas make it more complicated and more expensive to buy, move, and make things.

On the other hand, it's probably good news for supply chain management professionals, because we're becoming more important than ever!

A supply chain is a complex network made up of people, processes, and technologies that is engineered and managed to deliver value to a customer.

Here's one explanation of how supply chains work, that shows how automobile manufacturers in the U.S. depend on other companies all around the world.

When countries start to launch tit-for-tat tariff attacks, they often escalate into trade wars with unexpected casualties. Like in this example from Gartner's Michael Massetti, where U.S. tariffs on imported steel are hurting exports of cranberries. Or this insightful article that economist Jason Schenker wrote for Bloomberg about the broad impact of tariffs across countries and industries.

Tariffs can have lots of unintended consequences, but one thing is certain: they increase costs along the entire supply chain. Each company will pass their cost increases along to their customers, and collectively those costs are all paid by the end consumer.

So when you and I are shopping at the grocery store next year, you can be sure that we'll be paying for the increased cost of the steel that's going into the ships and semi trucks that are being made today.

And tariffs go both ways. Supply chain managers in other countries won't buy products from us if they are taxed heavily. Which means many domestic companies are likely to lose international customers, and revenue.

We live in a dynamic, global economy. Part of managing a supply chain is being ready and able to change course and adapt when the circumstances change. Whether you support tariffs or oppose them, they're one of the many risks that supply chain managers need to be prepared to handle. So, perhaps one of the unexpected results of this new round of tariffs will be a growing demand for everyone to learn about supply chain management.

Daniel Stanton is the best-selling author of Supply Chain Management For Dummies and several video courses for LinkedIn Learning and Lynda.com. Follow him on LinkedIn for weekly tips on supply chain management, operations management, logistics, project leadership, and innovation.

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