GO! You Have Less Than 90 Days

GO! You now have less than 90 days to do something before China import tariffs are raised again. Get going now.

As many of you know by now, the United States and China temporarily paused the trade dispute after the G20 Summit in early December. As part of this pause, President Trump has agreed to hold off on increasing the third tranche of the Chinese tariffs from 10% to 25%. These tariffs, on $200 billion in Chinese-made goods, are paused in exchange for China purchasing a “very substantial” amount of American-made products.

Those of us who are China watchers agree, that an agreement between the U.S. and China is very unlikely to happen, especially with the recent arrest of Meng Wanzhou, the CFO and heir-apparent of Huawei, one of China's largest electronics equipment makers. Meng Wanzhou was arrested in Canada and is expected to be extradited to the U.S. for violating U.S. export sanctions on products shipped to Iran.

What is more likely to happen is, at the end of the 90 days, the U.S. will increase the third tranche of the 301 China tariffs on the $200 billion worth of Chinese imports from 10% to 25%. All three tranches will then be at 25%.

If you haven't already made plans for your supply chain operations, don't waste any more time. The clock is ticking.

Many companies have already started building inventory by procuring parts and products now, prior to the tariff increase. December is usually a slow month for China imports, with holiday merchandise already on the shelves, but this year December shipments from China are forecasted to be 1.83 million TEU, up 6.1 percent from 2017. This means that many companies are buying extra inventory now to avoid the increase in tariff rates.

Another alternative is to start sourcing or developing new sources in other countries such as Vietnam, Thailand, Indonesia, and other low-cost countries. But developing and qualifying new sources takes time. Even the giant contract manufacturer Foxconn, Apple’s biggest iPhone assembler, is considering setting up a factory in Vietnam to mitigate any impact of an ongoing trade war between the United States and China. If you haven't already started the process of identifying and engaging new suppliers, get going NOW! The trade wars are likely to get worse before they start to get better.

As always, our favorite alternative is to bring manufacturing back to America. To make this decision work economically, there are a lot of factors to consider including location, labor rates and skills, tax incentives, automation, transportation, and logistics. A Total Cost of Ownership (TCO) model should address all of these factors.

We are in the process of helping several companies with reshoring decisions and it is more complex than it appears when you take all the factors under consideration. Every business has unique characteristics, requirements, and business goals that must be addressed. This takes time and skilled assistance from professionals.

The bottom line is: Don't delay. Get going and develop an executable strategy now. There is no time to waste.

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