Supply Chains and Protectionism – SAGE Business Researcher

Will tariffs shrink global production networks?

Executive Summary

Global supply chains arose and flourished in an era of falling tariffs – an era that may now be coming to an end amid an upsurge in protectionism. President Trump and other political leaders’ plans to boost tariffs or overhaul free-trade agreements could increase costs and pose new risks for multinational companies that have built extensive worldwide networks of subsidiaries and supplier partnerships. However, experience suggests that in most economic sectors, supply chains do not need to change substantially in the face of protectionism. Small adjustments should be enough to allow most companies to preserve operations and avoid significant increases in the cost of their goods.

Key takeaways include:

Global supply chains have multiple variable costs, and research shows that when some of those costs rise, suppliers often choose to absorb them and remain in the supply chain.
In cases where companies pass on higher costs to retail customers, the strong global economy could help consumers absorb small price increases caused by increased tariffs.
In the longer term, companies worried about protectionism may prioritize risk management over cost savings by focusing on regional rather than global supply strategies.
Click here to listen to an interview with author Matt Mossman or click here for the transcript.

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Resources for Further Study

Bibliography

Books

Baldwin, Richard E., “The Great Convergence: Information Technology and the New Globalization,” Belknap Press of Harvard, 2016. A trade-policy expert explains how globalization gave companies opportunities to manufacture in low-cost countries, and how companies have combined this geographical freedom with information technology to facilitate the transfer of other functions, such as managerial positions, across the globe.

Bowen, Steven J., “Total Value Optimization: Transforming Your Global Supply Chain Into a Competitive Weapon,” SDJB LLC, 2017 A logistics consultant describes how companies can overhaul their transportation and storage operations to improve their supply chains and bottom-line performance.

Articles

“Herfindahl-Hirschman Index,” U.S. Department of Justice, last updated July 29, 2015, http://tinyurl.com/y8n3vhs5. An explanation of how the U.S. government evaluates industries to determine the level of competition and concentration risks in an economic sector.

Lu, Sheng, “Four key patterns in US apparel imports,” just-style, March 1, 2018, http://tinyurl.com/y9txzyce. A professor from the University of Delaware who studies the global textiles industry explains how the fashion industry has adjusted its supply chains to account for protectionism.

Wilder, Mike, “The consumer cost of Washington’s ‘win-win’ NAFTA timeline,” Journal of Commerce, May 08, 2018, http://tinyurl.com/ybx8xfc5. A logistics specialist explains possible motivations for and drawbacks of current U.S. trade policy, even if it succeeds in attracting more investment from companies.

Reports and Studies

“Global Economic Prospects: The Turning of the Tide?” The World Bank, January 2018, http://tinyurl.com/lnmdtze. World Bank economists address the maturing of supply chains and how this has affected the pace of global growth.

Constantinescu, Cristina, Aaditya Mattoo and Michele Ruta, “Does Vertical Specialization Increase Productivity?” The World Bank, February 2017, http://tinyurl.com/y7s6g4yl. Experts explain their methodology to measure the impact of global supply-chain participation on companies worldwide and explain their conclusion that doing so boosts productivity.

Dempsey, Linda Menghetti, “Testimony Before the International Trade, Customs and Global Competitiveness Subcommittee of the U.S. Senate Committee on Finance on Market Access Challenges in China,” National Association of Manufacturers, April 11, 2018, http://tinyurl.com/ybzmbvmw. An advocate for manufacturers testifies on the challenges companies face in accessing the Chinese market.

Engel, Charles, “Equivalence Results for Optimal Pass-Through, Optimal Indexing to Exchange Rates, and Optimal Choice of Currency for Export Pricing,” Journal of the European Economic Association, December 2006, http://tinyurl.com/y74k9t86. A University of Wisconsin economist explains how global supply-chain participants typically react to exchange-rate fluctuations, a common variable cost.

Humphries, Marc, “Rare Earth Elements: The Global Supply Chain,” Congressional Research Service, Dec. 16, 2013, http://tinyurl.com/yb323cz2. A research paper for the U.S. Congress explains the details of an important global supply chain that also serves as a source of raw materials for many other manufacturing supply chains in the global economy.

Shay, Scott, Ted Stank and Ben Hazen, “A SAVVY Guide to the Digital Supply Chain,” Global Supply Chain Institute, April 6, 2018, http://tinyurl.com/y78qc7up. Supply-chain professors at the University of Tennessee explain how moving supply-chain processes from manual to digital can help companies.

Walmsley, Terrie, and Peter Minor, “Reversing NAFTA: A Supply Chain Perspective,” ImpactECON, March 2017, http://tinyurl.com/ycw89ubd. Private-sector economists explain how cancelling the North American Free Trade Agreement would reduce GDP, investment and jobs in all three signatory nations: the United States, Canada and Mexico.

The Next Step

NAFTA Renegotiation

Cattan, Nacha, and Michael McKee, “No Nafta Better Than Bad Nafta for Mexico’s AMLO: Top Aide,” Bloomberg, June 5, 2018, https://tinyurl.com/y8aey639. The front-runner to become Mexico’s next president will insist on a trilateral trade agreement with the United States and Canada, rather than separate bilateral accords, if he wins the July election.

Domm, Patti, “US trade relations at a low, as China set for new tariffs and amid fears Trump will leave NAFTA,” CNBC, June 13, 2018, https://tinyurl.com/ycf9qe9u. The deteriorating relationship between the United States and Canada continues to threaten the viability of North American Free Trade Agreement renegotiations and could lead to more retaliatory tariffs between the two countries.

Fox, Michelle, “GOP Rep. Kevin Brady: NAFTA allies ‘close enough’ on talks, should be able to reach deal,” CNBC, June 14, 2018, https://tinyurl.com/ybgrbblz. Renegotiating a NAFTA that promotes growth is vital to the U.S. economy, and discussions should continue despite increasing tensions with Canada and Mexico, says Rep. Kevin Brady, R-Texas, who chairs the House committee that has jurisdiction over trade issues.

Steel and Aluminum

Ferry, Jeff, “US steel and aluminum tariffs — the right move at the right time,” The Hill, June 2, 2018, https://tinyurl.com/y9b5qamx. President Trump’s steel and aluminum tariffs will protect U.S. national security by halting the decline in domestic production of both metals, says the research director of an organization that favors more restrictive trade policies.

Nienaber, Michael, “EU will act against U.S. tariffs on steel, aluminum: Merkel,” Reuters, June 10, 2018, https://tinyurl.com/y8787lp7. German Chancellor Angela Merkel said the European Union will retaliate after the United States imposed steel and aluminum tariffs on the EU.

Timmons, Heather, “Over 146,000 Americans will lose their jobs because of Trump’s trade tariffs,” Quartz, May 31, 2018, https://tinyurl.com/ycfaxhef. Increased prices for U.S. manufacturers that use imported steel will lead to job losses that more than offset the gains in the steel and aluminum industries, an economist has concluded.

Organizations

American Chemistry Council
700 Second St., N.E., Washington, DC 20002
1-202-249-7000
https://www.americanchemistry.com
Trade association representing makers of plastics and other chemical products used in global supply chains.

Global Supply Chain Institute
300 Stokely Management Center, 916 Volunteer Blvd., Knoxville, TN 37996
1-865-974-5061
https://haslam.utk.edu/gsci
A program at the University of Tennessee’s Haslam College of Business that publishes academic scholarship and other research focused on supply chains.

Global Trade Alert
Bodanstrasse 8, 9000 St. Gallen, Switzerland
+44 (0)20 7183 8801
https://www.globaltradealert.org
contact@globaltradealert.org
Founded in 2009 by the London-based Centre for Economic Policy Research, this group tracks trade-related policies and trends.

Institute for Supply Management
309 W. Elliot Road, Suite 113, Tempe, AZ 85284
1-480-752-6276
https://www.instituteforsupplymanagement.org
Hosts conferences, conducts training and studies supply-chain trends on behalf of member organizations.

Office of the U.S. Trade Representative
600 17th St., N.W., Washington, DC 20508
1-202-395-3230
https://ustr.gov
The federal office that develops trade and investment policy, advises the president on it and negotiates trade deals with other countries.

Organisation for Economic Co-operation and Development
2 Rue André Pascal, 75775 Paris Cedex 16, France
+33-1-45-24-82-00
FAX: +33-1-45-24-85-00
http://www.oecd.org/
A group of 35 developed countries that studies global economic issues, publishes data and recommends reforms.

The World Bank
1818 H St., N.W., Washington, DC 20433
1-202-473-1000
http://www.worldbank.org
A global organization created to help developing countries end poverty through grants, loans and advisory services for governments.

World Trade Organization
Rue de Lausanne, 154, Case postale, 1211 Geneve 2, Switzerland
+41 (0)22 739 51 11
www.wto.org
enquiries@wto.org
International organization charged with enforcing global trade rules and arbitrating disputes between member nations.

DOI: 10.1177/237455680419.n1