Nothing is constant in this world. And America just recently witnessed one of the most surprising events took place in the country’s political arena. President Trump won the American presidency and snatched Hillary Clinton’s dream of becoming the first U.S. lady president. It made the news all over the globe and people were wondering what his leadership would mean to the U.S. and to the world at large.
Now that he has finally assumed office, both local and big businesses are curious as to what will happen next to their businesses as his plan for the next four years continues to unfold (and businessmen most likely cringe in anticipation).
It’s still early in the Trump presidency, but not too early for supply chain professionals to begin planning for what could be major challenges in global markets and trade agreements, especially if President Donald Trump follows through on border tariffs, the dismantling of existing trade agreements, and other “America First” protectionism ideas he has shared as part of his Twitter-storm rhetoric.
One discussion topic among procurement and supply chain professionals is the resurrection of the age-old “near-shore/on-shore” debate, and whether (and when and where) supply chain professionals should either locate their own assets or build relationships with suppliers.
An early viewpoint from the January meeting of political and business movers and shakers in Davos is that thinking too globally might not be the wisest strategy: a shift to “localizing” operations is a good fallback position.
Issues regarding trade relations with China can also impact both small and big offshore Chinese businesses, which in turn will affect American businesses that relies on China for cheap materials and labor.
Higher labor costs and stricter regulations keep nudging Eric Li’s glass factory in southeast China toward insolvency, even though his lampshades are on the shelves at Home Depot. President Donald Trump’s threatened tariff on his goods may be the final shove.
Three of the four furnaces at Huizhou Baizhan Glass Ltd.’s dusty plant sit dormant, and the workforce making lampshades and vases for export to the U.S. has been slashed to 150 from about 1,000 just a decade ago. Profit margins are shrinking, and Li said the company started by his Taiwanese father in 1991 is hanging by a thread.
“If there’s a tariff, it’s game over for us,” said Li, 42. “We don’t have the ability to take on extra costs.”
Thousands of small- and medium-sized factories in China face the same predicament, with some owners considering shutting down or selling out if Trump slaps a levy on Chinese products that he said could reach 45%. These makers of clothes, toys and household goods fuel the $462.8 billion annual flow of exports to the U.S. but aren’t cash-rich, making it harder for them to take the tariff punch or pivot their operations toward Southeast Asia.
A lot is at stake both in and out of the country. But it is hard to predict too early in the Trump presidency which of his initial policies will be approved by the Congress and eventually enforced. Even ordinary people will soon realize the importance of issues such as Free Trade and economic policies as we all experience their effects first-hand.
The issue, known in trade jargon as rules of origin, figures to be a major bone of contention as President Trump undertakes his promise to radically overhaul the North American Free Trade Agreement.
And here’s an example of how it works…
On motor vehicles, there is a provision allowing duty-free imports and exports so long as at least 62.5% of the value of a vehicle originates in one or more of the three nations. Trump’s trade team is looking to raise that percentage significantly, on the theory that it will boost domestic production and jobs by preventing manufacturers from bringing in more components from Asia and other countries outside North America.
There’s no assurance, however, that a higher rule of origin threshold, say 75% or 80%, will prompt car makers to move work from existing locations or make new investments in the U.S. rather than in the other two countries, particularly Mexico.
Building new manufacturing plants or expanding existing ones would require companies to spend millions, even billions of dollars. And manufacturers don’t want to be saddled with excess capacity should the market slow down.
The American economy is actually progressing and I am sure many ordinary Americans can feel this progress. However, many people can’t also hide their fears about the erratic policies of the new administration. His unorthodox ways may indeed be a concern for many and fearful that whatever momentum we are now enjoying will be stunted. However, let us remain hopeful that he has the best interests of the country and every citizen at heart.
Businesses may have to cope with certain policy changes – big or small – and ride the tide as the country attempts to achieve greatness once more. But that’s just the way things go.