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The US China Trade War’s Impact On APAC Supply Chain

Date: 12 March 2019

The supply chain and procurement industry in 2019 has so far been marked by the escalating trade war between the world’s two largest economies, the US and China, with each country imposing escalating tariffs on the other. Despite a 90-day ceasefire reached at the G20 summit, stakeholders all along the supply chain have had to rethink their existing arrangements, with significant staffing implications in both the short and long term.

Read our comprehensive update on the situation to discover more about the impact on supply chain recruitment and job opportunities in APAC. 

US-China Trade War Timeline: Key Events

  • May 11, 2017 – US and China agree on deals covering meat exports, but are unresolved on issues like steel and aluminium.
  • Jan 22, 2018 – US announces tariffs on solar cells and some washing machines imported from China.
  • March 8, 2018 – Tariffs of 25% imposed on steel and 10% on aluminium from China to the US.
  • April 1, 2018 – China imposes tariffs on $3 billion worth of US goods over 128 products including fruit, wine, seamless steel pipes, pork, and recycled aluminium.
  • May 3, 2018 – Trade negotiations held in Beijing, but the issues remain unresolved.
  • May 20, 2018 – Truce is called after China reportedly agrees to buy more US goods.
  • May 29, 2018 – US reinstates tariffs.
  • June 15, 2018 – 25% tariff imposed by US on $50 billion worth of goods.
  • September 17, 2018 – 10% tariffs imposed on a further $200 billion in Chinese products, with plans to increase this to 25%; President Trump threatens additional tariffs should China retaliate.
  • September 18, 2018 – China announces that it will impose tariffs on $60 billion in US goods.
  • November 1, 2018 – Phone call between Presidents Trump and Xi restarts talks.
  • November 26, 2018 – Trump suggests to the Wall Street Journal that he may impose a 10% tariff on Apple iPhones and laptops imported from China, and says he is unlikely to delay the increased tariff rate announced on September 17 beyond January 1.
  • December 1, 2018 – Xi and Trump meet at G20 Summit and agree to delay the planned increase, and undertake to agree to a trade deal within 90 days.
  • Jan 28, 2019 – Trade talks set resume as the US announces criminal charges against arrested Huawei CEO.

How is the US-China trade war’s affecting the supply chain and recruitment?

China will likely use its own investments to boost its economy, mitigating any drop-off in trade. However, this is a lose-lose situation for both China and the US, as both economies require the other. China will need to find new partners in the APAC area to offset the shortfall, but with the US perhaps the biggest consumer of Chinese goods, there will remain a deficit.

There are some fears that the range of goods affected by the tariffs could expand. And even if the tariffs return to normal, Chinese manufacturing firms will need to look to future solutions both in terms of creating more efficiencies, and to address the issue of its rapidly aging workforce. “With the burden of increased taxes from the duties borne by the end user – which in many cases will be the US consumer – we will likely see businesses scrambling to move operations or keep costs down through more efficient work practices,” said Randy Chan, Head of DSJ Global, APAC. “Businesses will have to work hard to get leaner in order to remain competitive.”

Trade war creates ripple effects for the rest of APAC

The Financial Times reports that several major US retailers including Steve Madden and Techtronic Industries (which makes parts for Hoover), as well as Asian firms Samsung and Daikin, have moved or expanded their manufacturing plants from China to Vietnam, Cambodia and Malaysia, with brands offsetting their risk by expanding into new territories.

And it’s not just US companies moving: according to the Epoch Times, some Taiwanese firms are also shifting their supply chains out of China and expanding production capacity in Taiwan or even going into production in the US and Germany. These include Career Technology, which creates printed circuit boards for Apple, and Compal and Quanta, both contract manufacturers in the tech space.  

However, replicating the established supply chain networks in new territories will take significant investment of resources and expertise: for many manufacturing firms, their products are highly networked with other Chinese manufacturers. Another challenge is that the local workforces and infrastructure are smaller in these territories than in China, and demand for talent will likely exceed capacity in the local workforce.

Despite making these moves, US retailers still intend to maintain long-term relationships with Chinese firms, but are mitigating their exposure to potential future flare-ups by diversifying in the region. It’s possible that India’s economy will see changing dynamics as another potential consumer and/or manufacturing hub.

Long-term steps are required to shelter supply chains from trade wars

Supply chains will have to forecast the right amount of demand, possibly diversifying products and even upgrading equipment as a range of ways to mitigate the risk in the future. AI and automation is the future of supply chain, so teams all across Asia must look to increase capacity for innovation in this area now.

This trade war may be a catalyst to remind firms to future-proof their supply chains by investing in AI talent and systems, particularly as China’s aging population is taking a toll on its economy and workforce. The talent pool therefore needs to get younger and smarter while also decreasing its reliance on the labour force.

What are the talent implications - and supply chain job opportunities - for APAC countries?

In the short- and medium-term, we will likely see significant mobility as businesses move expats into more cost-effective countries like the Philippines, Vietnam, Cambodia, India, Malaysia and Indonesia. They will need to hit the ground running and build a sustainable workforce, before moving on and handing the keys over to their second in charge.

This will mean that supply chain departments will likely be diversified over a larger geographical footprint, management of which will require regional expertise. Another ramification of this move is that the foreign investment and labour laws of developing nations are less consistent, so businesses will need to navigate potentially murky bureaucratic waters.

However, for the long term, firms need to hire people with the soft skills to think ahead, anticipate risk, respond agilely to change, make strategic decisions and partner with the business to avoid negative impacts of possible future trade fluctuations. Contingency and scenario planning will become a highly sought-after skill, particularly working with AI to model possible outcomes.

C-suite leaders will also need to keep an ear to the ground politically and communicate possible policy changes to teams. Supply chain is now a business-critical area, so leaders will be required to strategically navigate a volatile and uncertain supply chain and procurement landscape.

If you’re in need of new talent to bolster your supply chain team, talk to us today.

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