The Friday Report: March 20th, 2020

Quick wrap up of a few hot topic newsworthy stories in the supply chain logistics industry

Chinese Tariffs Continue on Medical Equipment

Recently 160 businesses and organizations wrote a letter to the White House to request a suspension in tariffs on billions of dollars’ worth of goods imported from China.  Analysts and industry associations are concerned that the tariffs would only compound current economic challenges.  The American economy is already tackling the problem of dealing with reduced demand.

U.S. businesses depend upon China for manufacturing, raw materials and finished goods including medical equipment which totaled $5.2 billion in 2019.  The imposition of the tariffs increased costs for entities relying on imports such as hospitals and health service providers, an estimated increase of $400 million.

Tariff exemptions only included a few urgently needed products as medical equipment cannot be quickly replaced by manufacturers in other countries.  To cover for this need, domestic manufacturers including GM and Ford have been evaluating whether they can shift some production capacity to manufacture medical equipment. 

Will China Implement Aggressive Post COVID-19 Strategy?

What began with U.S. trade wars with China advanced to an evaluation of the need for decentralized global value chains.  Rather than ceding to pressure by shifting to manufacturers outside of China, Western businesses have found that the problem is not easily solved.

Recently both Chinese government agencies and officials have spoken publicly that China may decide to take advantage of being the first country to move to the economic recovery stage following the COVID-19 outbreak by flooding the market with lower cost Chinese goods.  This would enable China to increase its market position by wrangling more market share in critical industries.  This is a repeat of a previous strategy used by China after the 2008 financial crisis.  China leveraged major government subsidies and theft of intellectual property to build up its national champion companies.

Chinese state media commentators have been advocating for the expansion of Chinese companies in other markets outside the country most notably in key sectors such as artificial intelligence, the industrial Internet, high-speed rail, 5G and new energy vehicles. 

Experts Predict Six Months of Changes and Disruption to Global Supply Chains

Supply chain logistics experts including supply chain technology firm Resilinc recently changed their advisory to the industry disrupted by COVID-19, the novel coronavirus global pandemic.  Initially, experts advised the supply chain industry to get ready for three months of disruption in global supply chains, however predictions were recently increased to six months of supply chain disruption due to the increasing intensity of the virus.

Disruptions are likely to include inventory shortages, lead time delays and transportation and logistics challenges related to the global pandemic.  Although initial predictions were that the virus would reach a peak in the middle of March then taper off, the opposite has occurred.

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