Trade wars between countries immensely disrupts the supply chain and limits global economic growth, therefore, . These disruptions are uncertain and many companies may suffer significant losses due to the rise of any geopolitical event. It is difficult to predict how long the trade war may last. Therefore, the benefit of every investor in the trade business rests on having alternatives. It helps in staying ahead of any changes in the shipment deliveries and ensuring on time inventory management. The success and profit graph of any businessman involved in the import and export business depends on how well one manages their business amidst global delays and imbalances in trade. Let us learn more about how the supply chain is affected and what traders can do to minimise losses.
Impact of geopolitical tensions on Trade
The geopolitical risks arise at a political, military or economic level. Almost every country is involved in the global trade business and economically benefiting from it. Countries worldwide import and export goods to increase their profit margins and keep the supply chain flowing. Trade gets impacted when geopolitical tensions arise between countries that are major exporters of goods. Under such circumstances, the supply chain witnesses a lower quality or expensive flow of goods. If pressures are high, investors pull back their capital, making it even more difficult to avail of good quality goods. In such situations, even consumers delay their expenditure on purchases and this is complemented by a consistent downturn in economic activities; the global economy suffers greatly.
What is a trade war?
The import and export activities between nations help in the expansion and blooming of the trade industry. Under extreme scenarios, countries’ governments restrict international cross-border trade to promote domestic trade and industries. Governments implement protectionist policies to encourage economic activities within their country to upscale themselves against foreign competition. It is done by restricting the import of other foreign competitors by imposing financial barriers such as tariffs and subsidies. Tariffs are custom duty taxes imposed on imported goods by a nation. When protectionism grows extreme, a trade or commercial war seeps in. In protectionist conditions, it is natural that the opposing country would also attempt to safeguard and promote its domestic industry and create new jobs. Therefore, the economic conflict between countries deepens, where one country raises financial barriers in response to the opposing country’s tariffs, quotas and other obstacles.
Relation between supply chain and trade wars
Trade wars interrupt the import business by imposing heavy duties and taxes on other countries to secure domestic industries. Since the supply chain rests mainly upon import and export, any imbalance in trade directly impacts the supply chain. Business suffers while countries continue to rattle by increasing tariffs and quotas. Therefore, it is essential to avoid an economic downturn during commercial wars because supply chain disturbance affects global trade.
What is the impact of a trade war on the supply chain?
The trade war disbalances the countries’ internal economy and impacts the goods circulating through the global supply chain. When the countries that are major exporters of goods are in a trade war, it is bent to affect the rest of the trade industry immensely. As tariffs continue to be increased, other countries suffer. The importing countries feel the trade shocks and have the potential of undoing about 3-5 years of economic growth in the supply chain.
- Increase in prices of goods – If raw materials to be exported are levied with higher tariffs, manufacturers are forced to buy them at heavier prices, thereby increasing the cost of finished goods.
- Disruption in the supply chain – During trade wars, uncertainty and delays are at their peak. Goods take longer to reach the market, which disbalances the flow of the economy, leading to losses.
- Surplus of unsold goods – The goods in the supply chain during trade wars are either in excess or insufficient. As the prices for goods rise, consumer demand begins to fall, causing excess goods to lie in the inventories.
- Economic loss for countries – If the trade war lasts long or repeats frequently, investors switch to different suppliers and partners to keep their trade business running.
Managing supply chain disruptions amidst trade wars
A trade war is meant to exist when the leading economic countries constantly push tariffs. Under such crucial circumstances, uncertainty and imbalance swoop into the supply chain. Therefore, to serve your business interests, managing through these disruptions and reducing risks is essential to protect future profits. Supply chain orchestration is a tracking platform and a probable solution to alerting, managing and reducing the impact of supply chain disruption on business. A few other potential solutions include the following –
- Monitoring the trade politics – By staying updated with the political imbalance between nations, countries can predict any potential trade wars and prepare themselves to handle the effects of disruptions and imbalance in supply chain.
- Have alternative fixes – Countries must always prepare for any crisis or emergencies, have contingency plans, and be quick in formulating and implementing new strategies.
- Diversify suppliers – Countries must have a list of alternative suppliers instead of blindly investing and relying on one source supplier. It is incredibly beneficial when your primary suppliers are in a trade war.
- Local sourcing – Countries can ultimately reduce the impact of trade wars by going for local suppliers. It helps in the on-time delivery of goods and reduces significant costs spent importing from any other supplier during uncertain times.
By analysing multiple scenarios, trade policies and regulations before time, countries stay ahead and prevent themselves from any significant losses during supply chain disruptions. Collaboration with different suppliers, having alternatives and storing resources before a trade war hits the supply chain are necessary.
The impact of trade wars on the supply chain is immense as it disrupts the natural flow of goods globally. Countries at war suffer, along with those involved in trade with those in the trade war. Therefore, governments must take significant steps to limit supply chain disruptions. LOTUS Containers are container sellers and leasers that offer different types of containers across the globe. We provide sturdy and durable containers to suit the customers’ shipping needs.