Disputes And New Tariffs Are About To Raise Supply Chain Costs, Get Ready

Tariff to Raise Supply Chain CostsIf you have been paying even the slightest attention to the news in the past 2 years, then you know that by the start of 2019 we will see a sizeable rise in international, and quite possibly local, shipping rates.

Talks have been heating up around this topic from within the Trump administration. Now, while this topic was spurned by discord in a heated political climate between the U.S. and China, it certainly has much further reaching implications. All companies who ship freight need to be aware of the impact it may have on their business and not just those companies who have direct involvement in logistics operations.

Over the course of the last year or so, the political and economic relationship between China and The U.S. has gotten increasingly worse. In short, this has led to our current administration making wild changes to current trade practices. These changes include things such as new tariffs, a staunch focus on increasing self-reliance of fragile industries the reduction of reliance on foreign suppliers, as well how best to invest in lower tier industries (part manufacturing, electrical components, and heavy machinery to name just a few.)

Look out ahead if you do business with any international seaport as there will more than likely be more trade tariffs being rolled out very soon. It is starting to look like we can expect to see the majority of these being announced sometime in early to mid-2019.

Back in March, the USTR introduced two new tariffs; Section 232 and Section 301. Tariff 301 was fairly tame but tariff 232 has left some folks in the industry sitting on the edge of their seat, so to speak. It was Tariff 232 that expanded upon the authority of the government to issue national security tariffs as set forth in section 232 of the Trade Expansion Act of 1962.

The tariffs that we will be facing next year have actually already been issued, just not put into effect in full force as of yet. Right now, we are just waiting on it to come full-circle. On September 24th the Trump administration imposed a 10% tax on thousands of various imports coming from China. Well, on January 1st, 2019, that tax rate will jump up to a whopping 25%. In total, it comes out to somewhere around $200 billion in tariffs.

So What’s The Big Deal?

All of this may seem like a good thing, and in some ways, it may very well be. But there is indeed a rather large downside to all of this, as well…

By putting new trade rules in place with China, (one of our nation’s, and really the world’s, largest exporters), this will undoubtedly result in the rising cost of overall production for a majority of the goods that we able to have made currently in a foreign country for half the price where materials are more abundant, cheaper to acquire and more readily available.

Of course, the cost of raw materials is always fluctuating with the ebb and flow of supply and demand, so that part isn’t anything that is utterly new to us. And neither are tariffs or “trade barriers”.

Tariffs are generally a good thing to have in place as that is part of what keeps domestic production and employment going. These tariffs are a fee that foreign countries have to pay if they wish to import their goods into the country.

What Do These New Tariffs Mean For US-Based Logistics Operations And Supply Chains?

Tariffs may be issued for a variety of reasons for both imported and exported goods. They also tend to come with some hefty requirements that can be difficult for the logistics industry to become adjusted to.

As these tariffs are put into place, import prices get raised and as a result, any supply chains that operate wholly or even in part in China suffer as they are forced to pick up the tab or stop doing business from the foreign country. And it isn’t just companies that are native to China, there are countless US-based companies who simply have branches within China. So by proxy, even these US companies are stuck with the new fees as well.

But it isn’t just the US tariffs that are going to disrupt normal operating costs for supply chains. China has recently fired back with their own tariffs, albeit, at a much lower rate than what the Trump administration has imposed. As of September, China has issued a 15% hike across the board on various US imported goods.

Final Thoughts

As tensions continue to grow between the US and China, it would behoove shipping companies to go ahead brace themselves for a fairly large disruption in the industry that will last well into 2020. These tariffs are bound to result in companies having to make job cuts, pulling off various funding projects, and the restructuring of entire sections of their supply chain.