Faculty Viewpoints: Trade wars and supply chain management
In the Faculty Viewpoints series, Tufts Gordon Institute faculty share thoughts on the latest news and trends in leadership, business, technology and entrepreneurship.
At the beginning of 2018, President Donald Trump fulfilled a campaign promise and took steps to implement tariffs on U.S. imports from China, hoping to keep the U.S. economy’s competitive edge in a globalized world. TGI recently spoke with Steve Geary, who co-teaches Operations and Supply Chain Management at Tufts Gordon Institute, who says these tariffs could have ripple effects throughout the world and may disrupt the global supply chains that so many industries rely on to keep their businesses going.
Q: Why should we all pay attention to what’s happening with supply chains?
A: Everything around us has transited the global supply chain. In the last 30 years, the world has gone global. The socks on your feet are probably from Asia. The travel agent you talked to on the phone, or the help desk that you call for help with your computer – There’s a good chance they’re in India. In our daily lives, we look around and it appears to be the world that we’ve always lived in… But think about where all of these things are from, and they’re not from North Carolina anymore.
Q: From your perspective as a supply chain manager, what’s your take on President Trump’s trade wars?
A: What’s emerging from Washington DC is that President Trump is zeroing in on China. Initially, he started out opening up aggressive discussions with Canada and Mexico. Additionally, he was taking on the EU. And then, there was China. It caused logisticians like me to sit back and ask, ‘What’s going on? Why pick a fight on all fronts?’ It appears that what he was trying to do was demonstrate to the Chinese that he was serious and that they were his ultimate target.
Q: How are these actions affecting supply chains globally?
A: Over the course of the past 20 or 30 years, a tremendous amount of off-shoring activity has taken place, especially in China. And now, all of those relationships and all of the associated businesses are at risk. Similarly, on the flip side – for example, the American grain producers are facing a challenge: What markets do they come up with to replace China now that they’re less cost-competitive? So what we have is an enormous supply chain disruption, dealing with the two largest economies in the world, and that’s a problem.
Q: What makes the trade wars different this time?
A: It’s been a very long time since we’ve had a trade war. The last significant trade war of comparable scale was what led to the Great Depression. Certainly there have been tariffs and tariff adjustments, but we haven’t been in a full-blown tariff war for over 80 years. It’s a big deal.
Q: Which industries are being affected?
A: On the export side, the principal product that is directly attributable to the tariff issues is grain, because we provide grain to China. That’s a huge export of ours, and [China] came in and slapped a tariff on that. On the farm side, it has certainly placed fear in the hearts of most grain producers.
Q: How are consumers being impacted?
A: On the grain front, it’s actually beneficial for consumers in the United States. Our grain prices have gone down and we can get things more inexpensively. Here in New England, look at lobster. Prices have collapsed. The reason being that exports [of lobster] to China have been essentially shut down.
Q: You have said that trade wars make logisticians nervous. What are some of the uncertainties brought about by trade wars?
A: It’s helpful to think about trade routes. They were once predictable. Cargo moves back and forth from Southeast Asia to the west coast of the United States. We were sending grain over, and China was sending products to us. What’s going to happen as this new trade war ripples through? Where is that grain going to go? How are international trade routes going to be remapped? Who is going to be re-shoring activities that are currently taking place in China and moving into the United States or moving over into Mexico? Are they going to move them to Vietnam?
Our role in the supply chain is all about managing uncertainty. And to manage uncertainty, you have to have an idea of what it is… and now, the future is an unknown. We don’t know where this trade war is going.
Q: What’s next for the trade wars?
A: We’re all fixated on China now, but what’s going to happen with Brexit? Great Britain exiting the European Union is just on the horizon. Brexit could result in tariff increases, and because they no longer have a free market, prices for imports from Europe are going to go crazy. You’ve already got people relocating headquarters in Europe. Companies are exiting London. Brexit is going to be disruptive. Until they nail the deal, how disruptive it will be is something we just don’t know.
Q: What advice would you give to students who are interested in working in supply chain management?
A: Many of our students at the Gordon Institute are engineers. They are accustomed to working on projects with a controlled set of unknowns. They are focused on optimizing the black box in front of them. As a supply chain guy, I don’t care what’s happening in the box. I’m interested in what’s going in and what’s coming out, and how it links to the other boxes. So, I’m all about the network, not the nodes. And today’s global network is full of unknowns. You can’t control for everything in the network. That can be a challenge for a well-trained engineer.
The thing that’s wonderful about going into supply chain is that it’s global; it involves nations all over the world. It’s enormously interesting, and it’s enormously challenging, and it’s constantly evolving. It’s just fun.