Predicting Tariff Impacts on Industrial Business in 2020 [New Podcast]
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After months of slow progress, the creation of an agreement to resolve the ongoing trade war between China and the United States now seems to be picking up speed. Last week on January 15, President Trump signed the "Phase One" trade deal with China to implement a partial truce on international trade between the two countries.
In the latest episode of the Thomas Industry Update Podcast, Thomas CEO Tony Uphoff spoke with Andrew Blasi Jr., a director at Crowell and Moring International with a specific focus on regulatory policy and international affairs, about how manufacturers should prepare for the impacts of ongoing tariff uncertainty and the changes expected in both the short- and long-term.
"I think the American people are becoming increasingly aware that international trade in goods and in services is not only an issue that impacts [only] large and multinational companies but practically every business," says Blasi. "The negotiations, in many ways, have been a wakeup call for everyone, be it the employer, the employee, or the consumer."
How to Prepare Your Industrial Business for Ongoing Tariff Uncertainty
Looking ahead for 2020, Blasi shared his insights on the future of tariff impacts in the new year with Thomas Industry Update Podcast listeners.
"In the short term, we see high risk for continued escalation tariffs, primarily between the U.S. and China. But it goes without saying that that's not exclusively between the U.S. and China," he explained. "And if they haven't already, manufacturers should be planning accordingly. In such an uncertain environment, I would caution businesses to take a conservative view, particularly if your individual business or your broader sector has raw materials, intermediate goods, or finished products that are tied to U.S.-China trade."
While business has been moving ahead smoothly for many industrial companies, there's still a feeling of uncertainty in the air for many manufacturers. When asked to share his advice for industrial businesses in light of the continuing tariff negotiations, Blasi cautioned business leaders to stay aware of tariff changes and pay attention to how shifting international relations could impact their 2020 strategies.
"Some businesses may think they're more insulated than they actually are," he explained. "Every manufacturer needs to be paying close attention."
Blasi highlighted three main areas that will be affected by tariff uncertainty between the United States and China in the next few months and even in the long-term.
"If we assume, conservatively speaking, that tariffs are going to stay in place and possibly increase over the coming months, then there are several things that companies should take into account," Blasi explains.
Cost Implications
One of the most obvious impacts of tariff uncertainty on the industrial sector is financial. "This includes cost implications, not only on your sales but also on your inputs of goods for you as well as your entire industry," Blasi explains.
Business leaders should consider a variety of factors in predicting how tariff changes could affect their 2020 strategies.
"Beyond the cost implications, [consider] the amount your business can absorb — so how much of that cost can be absorbed, versus, depending on your sector, what can be passed onwards to customers? Do alternatives exist? And to what extent does that impact your supply chain diversification?" Blasi suggests leaders ask themselves. "Many businesses have already undertaken significant assessment and, in some cases, action around supply chain diversification."
Finally, SMB leaders should be particularly aware of the potential tariff impacts on their businesses.
"The implication of tariffs have already been and, I would say, can become increasingly more profound for small and medium-sized manufacturers," Blasi notes.
Reshoring Strategies
As international relations between the U.S. and China grew tighter last year, many manufacturers began shifting production out of China - but not all of them moved production back home. Instead, many moved their operations to other locations across Asia, including Vietnam and Thailand.
"We see very few U.S. businesses on-shoring their operations from China. I think this is a really important point to note because it's something that is widely discussed in the current environment, and it's one thing that the President and many within the administration have made a fine point on," Blasi says. "In fact, according to the American Chamber of Commerce in Shanghai, only 6% of U.S. businesses are bringing jobs and operations back to the U.S. from China, which is about the same exact rate it was before the trade negotiations commenced."
Looking ahead, Blasi notes, "The situation would have to change drastically, and not just with China, but with all other U.S. trading partners, I think, in order to see significant U.S. on-shoring of operations."
Technology Impacts
Finally, for industrial companies directly involved in the technology sector, tariffs will play a substantial role in future business.
"If any of your business is in a sensitive technology area, such as those covered in the Made in China 2025 initiative — those sectors include electrical equipment, aerospace, information technology, medical equipment, new materials, farming machines, railway equipment, robotics, and even new energy and autonomous vehicles — then I would be particularly sensitive to heightened U.S.-China technology issues over the short and the long term," Blasi advises. "This really does include things like active monitoring of foreign direct investment approaches and policies as well as the export control space."
Predicting 2020 Tariff Impacts
Learn more about Blasi's predictions for tariff impacts on industrial businesses in both the short- and long-term and how industrial leaders should prepare their teams to handle them in episode 7 of the Thomas Industry Update Podcast.
Image Credit: Thomas Industry Update Podcast
