The volatility of the U.S.-China trade war has brought about considerable uncertainty for companies with global manufacturing networks in a wide range of sectors.
Successive tariff escalations, regulatory burdens and other non-tariff barriers have posed serious challenges to companies in how they should adapt their supply chains to prepare for commercial risks amid growing trade tensions.
DHL’s Resilience360 platform, which provides customers with actionable insights to drive better business decisions and navigate impactful issues, conducted a customer survey to identify major trends and understand what actions companies were taking to minimize business disruption amid significant operational and regulatory turbulence.
Key findings from the study, “Impact of the U.S.-China Trade War on Global Supply Chains,” showed companies were falling short when it came to plans that mitigate the trade war-fueled risks. One-quarter of all respondents—from industries including manufacturing, retail, technology and logistics—said they had not outlined any contingency plans.
More than two-thirds of the 267 respondents said they have been impacted by the trade war, though 34.8 percent also stated they were currently not planning to take any actions, but intend to continue monitoring the situation closely over the next six months.
When asked what actions organizations were taking to curtail the impact of the trade war on their supply chain operations in China, nearly two-thirds said they were adopting short-term measures and applying for tariff exemptions for Chinese imports, seeking source components or assembly outside of China, or identifying alternative suppliers.
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Roughly 27 percent of respondents said they were not looking to relocate or shift production out of China as a result of the trade war. Among the rest, 36.1 percent said they were driven by the need to avoid tariff costs, followed by 21.1 percent for which market access and regulatory restrictions were factors, 19.7 percent who were concerned with rising labor costs, and 8.2 percent said they were driven out by increasing domestic competition from Chinese firms.
India and Vietnam were each the preferred destinations for 11 percent of respondents when looking to shift production or move manufacturing operations outside of China. Other major areas identified included the European Union at 7.7 percent, Mexico at 6.7 percent, the U.S. at 6.5 percent, Malaysia at 6.1 percent, Thailand at 5.8 percent, Indonesia at 5.5 percent and Cambodia at 3.2 percent.
Companies with supply chain operations in the U.S. and China are facing the challenge of having to adopt various measures to reduce their risk exposure and mitigate any impact on business operations. More than two-thirds of respondents indicated feeling the effects of the trade war and nearly half said they were either highly affected or somewhat affected.
In the U.S., nearly half of respondents (46.8 percent) are taking concrete actions to sure up their supply chains. As for strategic changes to supply chain operations, 12.5 percent of respondents said they have already either changed suppliers or started identifying alternative suppliers in the U.S., while another 12.9 percent said they would be seeking source components and assembly outside of the U.S. as a way of dealing with the tariffs.
When asked the same for China, the question evoked a stronger response, with 60.2 percent reporting they were taking some type of action due to the trade war: 15.7 percent are applying for tariff exemptions for Chinese imports in the U.S, while nearly 13 percent are looking for alternative suppliers in China.
Several respondents are also seeking price concessions from Chinese suppliers or including the tariffs as part of the tax in the price mark-up, with the costs of the tariffs ultimately being passed onto the customer. Others are looking to import products via a third-party location–either in a free trade zone or from other manufacturing factories outside of China–before re-exporting to their final destination to avoid being hit by further tariffs.
“The uncertainty surrounding the U.S.-China trade war serves as an ominous reminder of the various challenges that companies are likely to face heading into next year and beyond,” the study noted. “As organizations continue to contemplate whether fundamental, long-term structural changes to manufacturing operations are needed, the survey results provide unique insights into the challenges directly facing supply chain professionals.”