Trade Trauma Goes on Red Alert

It’s something many believed would have been over with by now. But with daily tweets, insults, accusations, the back-and-forth trade dispute between the United States and China has begun to hit a critical point for many firms and business. The most recent sign: the big stock sell-off last week.

Many in US business community wanted some level of tariffs, but that desire has turned into an anxiety of not being able to accurately forecast business results, or worse, worry over whether consumers will change their behaviors because of the trade war. “That’s the unintended consequences of the tariff conversation. How is it impacting the general consumer population?” says Tierney Remick, Korn Ferry vice chairman and co-leader of the firm’s Board & CEO Services practice.

While some Fortune 1000 businesses may only now be looking at the issue seriously, some firms, particularly industrial manufacturers, were on high alert the moment President Trump announced the first round of tariffs—on solar panels and washing machines—in January 2018. Many of those firms either have their big-ticket goods made in China or source raw materials there. Corporate executives were either drafting or reviewing risk assessment plans then. “Now leaders need to make sure that those plans they put down on paper are actually good plans that actually can be executed,” says Alan Guarino, Korn Ferry vice chairman and co-leader of the firm’s Board & CEO Services practice. 

Behind the scenes, some companies have been looking to diversify their supply chains away from China before the trade war began for a simple, non-controversial reason: wages and other costs of doing business in China have risen. But overhauling a supply chain isn’t easy under normal circumstances. Plus, the uncertainty of how the trade dispute will ultimately be resolved has some leaders hesitant to commit to major expenditures on new facilities in other countries.

It is, however, an opportunity for some firms to make their supply chains more efficient, says Ron Malachuk, a member of the firm’s Global Industrial Market practice. “Management and board directors will continue to look for opportunities to leverage artificial intelligence and other tools to enhance agility and flexibility,” At the same time, some small er companies may see the ongoing uncertainty as a business opportunity, says Guarino. “Perhaps they could now provide various products along a company’s supply chain where they were blocked previously by Chinese companies who were producing at lowest cost.”