Trade Risks are Supply Chain Risks

Nationalist politics present risks of isolationist trade policies, which could significantly impact supply chains globally. We have already started to see these dynamics as an extension of recent nationalist sentiment, especially in the United States.

Additional trade restrictions to protect national interests above international interests are a major risk across the global economy and are likely to emerge from the United States and other economies. And the tariffs that accompany these policies can add additional costs to supply chains.

The Rise of Trade Risks

These kinds of trade risks became a major red flag for the International Monetary Fund in 2018, due in large part because very strong global growth in 2017 was attributed to strong global trade. If trade conflicts continue and proliferate further, the downside risks to economic growth will increase.

These risks were most recently highlighted again in an IMF report just last month - in May 2019. Read my special report about this IMF report here - https://conta.cc/2Erp5yS

To put these risks in perspective, trade risks were on no one’s radar as a major risk of any kind in 2015. Very few analysts considered them to be credible risks well into 2018, even after U.S. Section 232 and 301 tariffs were announced.

From a supply chain standpoint, this means that global economic growth is at risk of destabilization and recession due to trade risks. And if the global economy slows, this would erode freight demand and profits.

Economic Risks Posed by Trade

At the time this book went to print, the economic expansion since the Great Recession of 2007-2009 was one of the longest in history, with some economists forecasting that it would turn into the longest expansion in history. But trade wars could dampen the outlook significantly. 

As Ben Bernanke noted on 4 January 2019 at a panel with Fed Chair Powell and fellow Fed Chair Yellen, business cycles don’t die of old age; they get murdered. In other words, economic expansions usually end because of something overlooked that creates a shock to the economic system.

In the host of usual suspects, very high valuations of tech equities and elevated trade war risks top the list. For supply chain professionals, trade risks are likely to remain front and center. And they are unlikely to be easily resolved, especially if economic growth slows. This makes trade a risk that could be on the docket of disruptive risks for the coming decade.

The Big Takeaway

For supply chain professionals, the big takeaway is that supply chains are vulnerable to trade and tariffs. And these risks could be even bigger in the decade ahead than they have been in a very long time.

This is an except from Jason Schenker's recent book Futureproof Supply Chain: Planning for Disruption Risks and Opportunities in the Lifeline of the Global Economy, which was released on 20 February 2019.

The book can be ordered at www.futureproofsupplychain.com

Jason Schenker is ranked the world's leading Financial Market Futurist. He is the Chairman of The Futurist Institute. Jason is also an instructor for LinkedIn Learning.

Tags: SupplyChain, MaterialHandling, Economy, Disruption, Technology, TheFuturistInstitute, Blockchain, QuantumComputing, Futureproof, Innovation, Trade, Tariffs, LinkedInLearning