Expert comment: what might the current US tariff implications mean for the future supply chains?

“Geopolitical tensions have significantly intensified over the past year and the impacts are being felt globally. The ongoing war between Russia and Ukraine has not only created immense human suffering but has also disrupted global energy supplies, food production and trade supply routes. The war has led to sanctions, energy shortages in Europe and rising global inflation, which in turn has affected countries worldwide.

“The growing challenge between the US and China over trade, technology and military influence in the Indo-Pacific is another source of instability. China's assertiveness in the South China Sea, its increasing influence in Africa, and its role in global supply chains are contributing to a shifting balance of power that affects both regional and global politics.

“The growing concern of a global trade war has been sparked by the recent US tariff announcements, leading to a chain reaction in international trade that has led to reciprocal measures by China and other countries. If more regions enter this, or if pressures escalate further, it could result in a broader trade conflict or even a global tariff war. Already, nervousness is being felt in the global financial markets and if this prevails for a long and sustained period it could harm businesses, raise prices for consumers and disrupt global supply chains. Subsequently, global companies and manufacturers could face increased costs, delays, or uncertainties about their ability to operate in foreign markets.

“If we consider the US and EU supply chain, it is estimated this is worth €4.4 billion/$4.8 billion (£3.7 billion) per year which highlights the vast scale of trade between Europe and the United States. Also, the interdependence between these two economies is crucial not only for their own growth, but also for global markets. It speaks to how intertwined industries, goods, services, and even financial systems are between the regions. Therefore, this volume of trade can also serve as an indicator of how resilient these supply chains need to be to sustain this amount of trade, especially in times of economic challenges or geopolitical tensions.

“If an escalating global trade war plays out, there would be several ripple effects felt, especially in global supply chains. However, these disruptions could mirror what we saw during the pandemic, but with unique challenges driven by tariffs, trade barriers and geopolitical tensions.”

Here are a few key impacts Jonathan recommends considering:

1. Increased shipping costs: with tariffs, port congestion, and potential transportation restrictions, the cost of moving goods globally could skyrocket. This would affect industries that rely on international suppliers, raising costs for everything from raw materials to finished products. The UK could be impacted significantly in this area. 
2. Product shortages and delays: supply chains are already sensitive to disruptions; we saw this in the pandemic and even with minor disruptions such as the Suez Canal being blocked in 2021. Therefore, an intensifying trade conflict could worsen delays. For example, if one country imposes tariffs on another, it could make certain components more expensive or harder to get, which would delay manufacturing and delivery of final products.
3. Inflation: we could see higher transportation costs and import/export fees that could likely lead to higher prices for us as consumers. This could result in inflation, affecting everything from food prices to electronics, creating more financial pressure on households worldwide. This will impact consumers’ cost of living and ability from independent growth, which in turn supports a wider growth area.   
4. Shifting manufacturing hubs: if this was to persist and countries and markets considered that unpredictability was not the way forward, regions and countries that were once major manufacturing hubs might see production move to new regions as businesses try to mitigate the impact of tariffs and trade restrictions. However, this could lead to temporary inefficiencies and even more supply chain challenges during the transition. Therefore, we may see these increases passed onto consumers if manufacturers and suppliers cannot fully take on these costs themselves.