Inside Supply Management Magazine

How to Take Advantage of the Trade Truce

December 10, 2018

The 90-day trade truce agreed upon by President Donald Trump and Chinese president Xi Jinping at the recent G20 Summit in Buenos Aires, Argentina, offers strategic sourcing professionals an opportunity to re-engage with suppliers on production and supply issues related to trade and tariffs.

“Until now, everybody saw increasing tariffs as a way of life,” says Geoff Pollak, managing partner, corporate performance improvement group at Alvarez & Marsal in Atlanta. “We saw an ever-increasing scale, with more and more duties being put on more and more products by the U.S. administration.”

At the G20 Summit, Trump agreed to hold off for 90 days on raising tariffs from 10 percent to 25 percent on US$200 billion of Chinese goods (a move originally scheduled for January 1), while Xi agreed that China would buy an undetermined amount of U.S. agricultural, energy and other products. While the truce offers both countries time to negotiate on trade issues, it also gives supply management organizations and their suppliers the opportunity to talk and create better value-added deals going forward, Pollak says.

When doing so, he says, “it’s important to make sure you’re engaging not just at a buyer-seller level, but also tap into those senior relationships and engage leaders from both companies to seek a middle ground of rebalancing production between China and other countries.”

Before the 90-day truce, many companies were already thinking of moving their production from China to other countries. Not only is such a measure time- and cost-consuming, it also bears additional consideration, Pollak says: “Be cautious about where you’re moving your production. I’m sure that as China and the U.S. come to terms, other countries with similar trade imbalances might show up on the horizon. Just because today there aren’t duties from other countries in Asia doesn’t mean there might not be duties in the future. Be sure to review the risks in the country you’re thinking about moving your production to, based on its trade imbalance with the U.S.”

Pollak says he advises determining the “true cost of doing business in each country, irrespective of the tariffs already in place. In the end, we all hope that a market open to free trade will yield less cost for the consumers.”

“We always say to be clear among your supplier relationships — know which of your suppliers you have an engaging relationship with and which suppliers are transactional.” The tariff situation, he concludes, “may give you an opportunity to turn some suppliers that have been transactional and move them into engagement from a process perspective.”