Tariff Shenanigans: Why They're More Complicated Than You Think

Dive deep into the world of tariffs and their complex interplay with global supply chains in this enlightening podcast episode. We explore the historical significance of tariffs, harkening back to landmark events like the Boston Tea Party, to illustrate the far-reaching effects that such policies can have on today's economy. Our discussion unfolds the reality of how modern tariffs, particularly those imposed by the Trump administration, are creating disruptions that ripple through various industries—agriculture, retail, and technology alike.

Listeners will uncover the surprising ways tariffs drive inflation, increase costs, and influence consumer behavior. As we navigate through the diverse ramifications on agriculture—where farmers face inflated production costs and retaliatory measures to the retail sector, which grapples with rising prices for imported goods—we shine a light on the interconnectedness of these industries. 

Furthermore, we delve into the ongoing debate regarding national security tied to tariff implementation. Do these protective measures truly benefit critical industries or do they stifle competitiveness? The episode underscores the potential geopolitical ramifications of trade policies, prompting listeners to consider the broader consequences for global relations and economic stability. 

As we wrap up this eye-opening exploration, we invite you to untangle the future of international trade amidst the changing landscape of tariffs. Join us on this journey as we lay bare the intricacies of how policy decisions impact our everyday lives. Don't forget to subscribe, share with your friends, and leave us a review to help spread the word!

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Chapters

• 0:00 Introduction to Supply Chain Advantage
• 15:00 The Impact of Tariffs: A Historical Perspective
• 53:00 Unintended Consequences of Modern Tariffs
• 1:59:00 Industries Affected by Tariffs
• 7:19:00 National Security and Tariffs Debate
• 16:50:00 Future of the WTO and Global Trade

Transcript

Tony HInes: 0:06

Hello, you're listening to the Chain Reaction Podcast, all about supply chain advantage. Great episode coming your way in just a moment. Stick around, stay tuned, find out more. Okay, let's take a look at what's happening around the globe and how that impacts global supply chains. Chain reaction.

Tony HInes: 0:38

Well, I was enjoying a very good cup of tea this morning thinking about and planning this particular episode that you're listening to right now, and it's amazing what short memories we have when we fall in love with tariffs, isn't it? And, of course, yeah, tea was instrumental in one of the biggest taxes imposed by the British East India Company on the American colonies, which you might recall. It led to the Boston Tea Party. It was a protest against the taxation, which had massive unintended consequences. On December 16th 1773, the local inhabitants of Boston, american colonists, frustrated by the Tea Act, british government's imposition of tax on tea, bordered the British ships in Boston Harbour and dumped 342 chests of tea. It was a major act of defiance, a protest against tax without representation and the monopoly of the tea trade by the British East India Company. The British government did what some governments do in such circumstances they responded harshly when they were criticised and this violent act took place. They closed Boston Harbour, they reduced the autonomy of the Massachusetts Bay Colony and they put into place punitive measures that further inflamed the tensions rather than dampened them down and, of course, ultimately that resulted in the outbreak of the American Revolutionary War, which is why we have the United States today.

Tony HInes: 2:26

Now is the United States making similar mistakes at present? Well, let's have a look at the tariffs. It's all about tariffs at the moment and trade, and it's President Trump's administration in the United States that's pushing all this tariff stuff. And tariffs, of course, cause friction in supply chains and they have unintended consequences and may not always have the intended consequences. So the principles are simple and may not always have the intended consequences. So the principles are simple. The Trump administration thinks that they will be able to get better deals for American companies and America itself around the globe by putting up tariffs on those countries that they think think, I stress have unfair tariffs on American goods going into their countries. But is this likely to work? Well, opinions divided, but the majority say it's a very dangerous tactic and it will more than likely backfire. And if you look at tariffs in the past and how they've been applied, that's often been the case. Tariffs intended to do one thing, have done something completely different. So will it be different for the Trump administration? Many think not. If we take a look at the impact of tariffs across particular sectors, we'll begin to see that actually, they don't look that attractive.

Tony HInes: 4:13

If you look at the food industry, tariffs on imported foods could lead to higher costs for ingredients and raw materials, and the increases are often passed on to consumers, resulting in higher food prices. For example, tariffs on tomatoes, avocados and certain grains can significantly raise the cost of these staples in the diet. The food industry relies heavily on global supply chains, and tariffs can disrupt these supply chains, which leads to inefficiencies and increased costs for food businesses and consumers alike. While some domestic producers may benefit from reduced competition, others will face higher costs for imported imports, such as packaging materials.

Tony HInes: 4:58

In farming, farmers, of course, are particularly vulnerable to retaliatory tariffs from other countries. For instance, imposing tariffs on China, mexico and Canada will lead to decreased exports and lower farm incomes. Tariffs on imported fertilisers and equipment can raise production costs for farmers. For example, over 80% of US supply of potash, a key fertiliser ingredient, comes from Canada, and tariffs on this import can significantly impact farmers' finances. It will push the cost up. Market uncertainty created by tariffs can make it difficult for farmers to plan and secure operating loans, and it puts pressure on their living expenses and, of course, their livelihoods in general. And if you think about market uncertainty in the farming industry, it's the last thing they need, because if you run a farm, you have to plan a year or two in advance at least to make sure you're going to be in business and you're able to maintain output and productivity through investing in machinery and, of course, your income.

Tony HInes: 6:03

Retail industries if you impose tariffs, they can suffer badly, because many retailers import goods from different parts of the world and if any of those goods have tariffs slapped on them, well, puts the price up right away to anybody shopping for those goods. In the US, retailers rely on imported goods and they face many challenges in their supply chains to get the goods to store. Tariffs can lead to increased cost and disruption, making it difficult to maintain inventory levels and to meet consumer demand. Some retailers may benefit from tariffs by sourcing products domestically or from alternative suppliers. Off-price retailers, for example, may be less impacted due to their low direct import exposure.

Tony HInes: 6:50

When it comes to manufacturing, the calculation is simple Tariffs on raw materials and components raise production costs for manufacturers and if you place tariffs on steel and aluminium aluminum, that will increase the cost for manufacturing machinery and vehicles. Manufacturing industries that rely on global supply chains may face significant disruption due to tariffs, leading to delays, increasing costs and, of course, inefficiencies. Because of the friction caused by the tariffs in the supply chain, higher production costs can make US manufacturers less competitive in the global market and it can lead to a decrease of exports and potential job losses. Tariffs have far-reaching consequences, increasing cost disruptions and market uncertainties, and these all outweigh the potential benefits that you might gain from tariffs. When it comes to tech companies, increased costs will happen because tariffs on tech components and products lead to higher costs for companies and many tech firms rely on those global supply chains to bring them the components and the goods that they demand as inputs to the tech industries, as inputs to the tech industries. To offset the higher cost, tech companies may pass the costs on to consumers and that will result in higher prices for tech products such as smartphones, laptops and other electronics. Apple have complained and they've said that that's likely to happen. Tariffs can cause significant disruption in the supply chain, leading to delays and inefficiencies, and it can affect the availability of those tech products and components. It will stop them from getting goods to the market on time and it could, in the long term, lead to people switching to those products that are available from other countries elsewhere. So it might make other products from other countries more competitive in the global market.

Tony HInes: 8:56

If we look at the service sector, it's similar to tech industries. The cost of imported goods and materials rises and it pushes the cost up in the service sector, and tariffs create economic uncertainty, affecting consumer confidence and spending, and that, of course, can lead to a reduction in demand for the service, impacting businesses and the service sector generally. Tariffs have a knock-on effect on the labour market, potentially leading to job losses or reduced hours for work in those affected industries. And then another reason for the Trump administration tariffs and Biden said as much when he put tariffs on goods as well was national security. But is that real or imagined? Well, national security for tariffs is often debated and proponents argue that tariffs protect critical industries and reduce dependence on foreign suppliers, which is essential for national security. But the critics argue that these concerns are often exaggerated and tariffs can harm the very industries they aim to protect by increasing cost and reducing competitiveness. There are broader implications too. The use of national security as a justification for tariffs can have broader geopolitical implications, potentially straining relationships with allies and leading to retaliatory measures.

Tony HInes: 10:24

It's similar in the aerospace industry. The aerospace industry relies heavily on imported components and raw materials, and if tariffs go on those materials and imports it will lead to increased production costs at companies like Boeing and Boeing have said as much too as indeed, of all the automobile companies who've been asked about the subject of tariffs and they'll pass the cost on to the customer. There's no doubt who pays in all this the customer. Aerospace manufacturing involves complex global supply chains, and tariffs disrupt these supply chains, causing delays and inefficiencies. For those components that cross international borders multiple times before final assembly, it becomes extremely complicated. It puts the US potentially at a competitive disadvantage in the aerospace market. If these components and goods that are imported become more expensive and when you think at the moment Boeing needs all the help it can get to compete against international competitors like Airbus this can lead to a loss of market share and decrease global competitiveness. Other companies, of course, will retaliate if the US keeps putting tariffs on those goods in any case.

Tony HInes: 11:51

It's the same in media businesses. Media companies often rely on imported equipment cameras, editing software, broadcasting tools and so on and if tariffs go on those goods, it will result in higher costs, which means that investment in new technology will probably get cut, content production costs will go up, and the economic uncertainty caused by the tariffs might also impact the advertising budgets and reduce income for those media companies too. Media companies that distribute content internationally may face challenges due to tariffs and trade barriers, and it can impact their ability to reach global audiences and generate revenue from international markets. So if we step back for a moment, what are we actually seeing here in this broad picture across those industries? Well, to me, the big shout out is cost, cost, cost going up, up, up, and if it goes up, that's inflationary and that's going to drive inflation up, and that's the last thing that anybody should be encouraging into their economy in uncertain times.

Tony HInes: 13:15

Ukraine has about 5% of the world's critical raw materials. It includes 19 million tonnes of proven reserves of graphite, which the Ukrainian Geological Survey said makes the nation one of the top five leading countries for that particular mineral Graphite is used to make batteries for electric vehicles. Ukraine also has a third of all European lithium deposits, which is a key component in current batteries, and prior to the invasion by Russia, ukraine's global share of titanium production, which is a lighter metal used in the construction of everything from aircraft to power stations, was 7%. Of course, some of that territory is currently occupied by Russia. Ukraine also has significant deposits of rare earth metals. Those are the 17 elements used to produce weapons, wind turbines, electronics and a whole range of other products. About 350 billion dollars worth of Ukraine's minerals are in occupied territories presently, and an estimate by a Canadian firm states that 63% of Ukrainian coal mines and half of its manganese, cesium, tantalum and rare earth deposits are in Russian hands.

Tony HInes: 14:42

The Trump administration, of course, is quite transactional and he thinks of himself as a big deal maker, so he's keen to do a deal in exchange for the money given to Ukraine, and he wants to get his hands on those minerals. The United States is keen to do so, of course, because it makes them less dependent on those minerals from China if they can get them via Ukraine. The interesting thing about these tariffs that Trump is introducing almost on a weekly, or even a daily basis sometimes, is that it ignores all the World Trade Organization negotiations that have taken place to get tariffs where they are today. The World Trade Organization was established by the General Agreement on Tariffs and Trade in 1994 and implemented in 1995. So it's been in operation for 30 years and the sense of equity and most favoured nation and the different rules that they have and apply to different countries in a system of world trade that until now has been relatively fair, although some might dispute that, and obviously the Trump administration thinks that the WTO hasn't been fair to America. Now it's interesting, I think, that all these institutions that were established at the end of the Second World War, the Bretton Woods Agreement, it's almost been torn up by this new administration and the imposition of tariffs has been taken over by the President's office. The Trump administration has blocked the appointment of judges to the WTO appeal body and that's basically tied their hands. They can't do anything to resolve any of the tariffs in the pipeline and the President's office has unilaterally imposed tariffs such as the 25% on steel and aluminium, without the WTO involvement. It raises serious questions about the future of the multilateral trading system and the effectiveness of the World Trade Organization. The rule books are being written and rewritten by the US administration and not the arm's length WTO. So the principles that underline the World Trade Organization have been completely eroded.

Tony HInes: 17:16

This week I had a look around to see what the top five concerns that supply chain managers face currently. My quick review suggests that geopolitical risks, the ongoing geopolitical tensions and trade disputes are causing significant disruption in global supply chains, and people are grappling with that one. Then there's all the new tariffs and trade policies coming out of the United States on steel and aluminum, which are impacting supply chain costs and operations. Then there's the economic unrest. The instability in various regions is affecting supply chain resilience and planning. Cyber security is also on the list. With increasing reliance on digital supply chain solutions, cyber security is right up there.

Tony HInes: 18:02

And then, of course, one that we haven't discussed yet today is evaluating and ensuring the financial health of suppliers. It's crucial for managing risks and maintaining resilient supply chains. You'll remember, of course, the episode with Josh Simon from JAS Worldwide where we talked about managing credit risk, and if you haven't heard that episode, it's a great episode and Josh gave us some good insights into why credit was so important to underpin global supply chains and the risks that are involved. So go and get the episode if you haven't heard it. If you like the podcast. Don't forget to subscribe and you'll be first to know Thank you when we have a weekly roundup of all things impacting global supply chains in that particular week. And if you haven't heard this week's yet, drop by, pick that up. Well, that's it for today. I'm Tony Hines, I'm signing off and I'll see you next time in the Chain Reaction Podcast. Bye, for now. You've been listening to the chain reaction podcast, written, presented and produced by Tony Hines.