The most challenging phase of the U.S.-China trade dispute is going to be felt on December 15 when the U.S. is scheduled to implement a 10 percent tariff on all domestic goods and personal electronics, otherwise known as List 4B. The timing of this announcement could not have been worse for the consumer electronics (CE) sector, which is already facing growth challenges in the form of product innovation and demand pressures. Growth is expected at 3.9 percent to reach a value of US$1.0 trillion at retail values in 2020, according to data published by Futuresource Consulting. While, on one hand, the bigger corporations such as Apple, Google, and so on have the necessary cash reserves to absorb these tariffs, the smaller companies will come under increasing pressure to pass these tariffs to the end-user, thereby negatively impacting demand.
With the global trade today witnessing disruptions caused by geopolitical tensions in the form of the U.S.-China trade dispute, Brexit, trade tensions between U.S. and Europe and, the recent dispute between South Korea and Japan, global technology supply chains that were optimized for cost efficiencies over a long period of time are now faced with another challenge: optimizing for geopolitical disruptions. They need to view these trade uncertainties as an opportunity to create strategic competitive advantage. Being agile and resilient is the need of the hour for these organizations.
The dispute between the U.S. and China is by far the most disruptive and, with no resolution in sight, the global CE supply chains are at increased risk of fracturing. Until this trade dispute reaches an amicable end, supply chain leaders could look at a “short–term” fix by re-evaluating the classification and product routing of their key components.
A longer-term view would entail the consideration of production shifts by evaluating national, organizational, and direct manufacturing cost attributes, with some analysts referring to this as a “China Plus One” strategy. This is a business strategy where companies that are active in China augment their existing investments with a second facility, generally for the purposes of risk diversification, cost reduction, or simply to reduce the over-reliance on China.
There is clear evidence that this is already beginning to happen, with some CE component manufacturers already announcing that they will move some of their production facilities to Vietnam, for example.
These trade disruptions could also potentially offer opportunities for companies to upgrade their supply chains by investing in digitization initiatives. As companies tide over this crisis, an agile and resilient supply chain that is capable of absorbing and addressing these disruptions could well be the difference between success and failure.
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