- July 15, 2019
Who’s winning, What Impacts CPG Sourcing?
Written by Russel Beron July 15, 2019
While US President Trump and Chinese President Xi agreed to a “truce” in their year-long trade war at the recent G20 Summit, the war is far from over. In this post, we will look at the impact on the U.S. global trade management, retail sourcing and the global supply chain, our next post will focus on the impact and implications of the trade war on China trade management, retail product development and CPG exports.
On the plus side, the US and China avoided further tariffs threatened by Trump on an additional US$ 300 billion worth of goods. As both sides get some breathing room to plan their next move, what is becoming clearer is what many pundits have threatened, that protectionism does not work in the long term.
Impact of the Trade War on the US
In the initial stages of the trade war, it seemed there was negligible impact to the United States. The USD dollar remained strong, stock markets continued to perform well, and consumer retail spending remained buoyant. In recent months some of these dynamics have changed. Some highlights:
- S. Steel has lost almost 70% of its stock market value, or $5.5 billion. Shares in Nucor, another large publicly traded steelmaker have dropped by around 20%, with new projects on hold.
- Soybean prices fell to the lowest point in 10 years, $8 a bushel, hurting American farmers who rely on China for their exports. Other American produced commodities have also been hit. Brazilian soybean producers have benefited by picking up new orders.
- Prices for goods hit by tariffs have increased in the range of 20-30%, almost in line with the new tariffs. While US customs is raking in more revenue, consumers are paying more as importers pass the costs down the supply chain.
- American companies such as Costco and Walmart have said they are raising prices due to tariffs
- Higher duties on imports of metals and Chinese products, have increased production costs for companies such as Caterpillar by more than US$100 million resulting in the heavy-duty equipment maker increasing prices for its products.
- Like Caterpillar, tractor manufacturer Deere & Co estimated they will have increased costs of US$100 million due to tariffs on Chinese imports, resulting in the company cutting costs and raising prices to protect profits
- On a small level Trump has been successful in reducing the $400 billion plus US trade deficit with China by approximately $15-20 billion.
- On the other hand, the US trade deficit with the rest of the world has grown by at least $15 billion, so the overall US trade deficit is not getting any lower.
- The US federal reserve is expected to make two more interest rate cuts this year to stimulate the US economy and offset the impact of the trade war.
Following the G20 Summit where the US and China agreed to a “tariff ceasefire”, China’s Ministry of Trade spokesperson, Gao Feng noted correctly that there are still many issues to be resolved to end the conflict. So far, aside from China and the US, a few other countries such as Vietnam and Brazil have benefitted from the trade war by picking up orders that have been diverted from the US and China.
In our next post we will look at the impact of the trade war to this point on China and how the rest of the world’s largest retailers are handling their global trade management.