The U.S.-China trade war is just one development in a shift in global sourcing and production that’s been underway for years, says Kevin O’Marah, chief research officer and co-founder of Zero100.
The effects of the trade war currently affecting global supply chains are an extension of a trend that’s been underway for a decade or more — the diversification of sourcing away from China in favor of other parts of Asia, Latin America and, in some cases, the U.S., says O’Marah.
The shift makes sense as a means of reducing the risk of single sourcing, and avoiding the rising costs of manufacturing in China. “But it gets hairy when it starts to be strictly political and we’re bomb-throwing,” O’Marah says, referring to the controversy stirred up by the Trump administration’s policy on tariffs and trade.
“Supply chain leaders are ready for this and have been planning for a long time,” he adds. “The short-term volatility of the discussion creates uncertainty and is a negative, but the long-term trend is positive.” By regionalizing supply chains, manufacturers can cut down on travel distance and produce goods closer to end-customers.
O’Marah views the tariffs as “a smoke alarm in the house,” one that signaled the need to reduce dependency on China in any case. He says the issue has been elevated from one that centers on supply chain management to “a business-level conversation.”
Paradoxically, some companies stand to benefit from the enormous amount of manufacturing capacity that China has on hand, especially when it comes to sourcing raw materials, fabrics, chemicals and metals that don’t fall under the category of rare earth and other “critical” minerals. Routing that product through a third country to avoid tariffs imposed on Chinese imports presents an opportunity for suppliers, although the U.S. will be on guard against attempts to bypass the charges.
All of this stems from a shift in geopolitical philosophy by the U.S. against free trade. “That is the megatrend,” O’Marah says.