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February 23, 2018

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Time for some scenario planning?

Be prepared: Policy changes that come about as a result of the president-elect's simplistic view of international trade could impact your supply chain costs with little warning.

I don't normally get into political discussions in this publication, but one topic that kept coming to the fore during the recent U.S. presidential campaign is directly relevant to supply chain managers and therefore merits some attention. Let me say up front that the following represents my personal opinion.

That topic, international trade and globalization, affects virtually every reader of this e-newsletter and its parent, CSCMP's Supply Chain Quarterly. Very few businesses today are completely untouched by international trade. Even those that make their products in their home country—whether that's the United States or any other nation—often import some of the materials that go into those products. Moreover, in countries (like the U.S.) where retail and consumer consumption are significant contributors to economic activity, imports play an outsized role, as a look at the "Made In" labels in any retail store will attest.

That's why many companies and the industry organizations that represent them are gearing up to talk back to the incoming Trump Administration on trade. The president-elect's stated desire to bring more manufacturing back to the United States is an admirable goal ... but not if it's at the expense of international trade. His rhetoric makes it clear that he considers imports to be intrinsically bad and local manufacturing and exports to be good. Any legislative or tax-regime changes that come about as a result of such an uninformed, simplistic, and inaccurate view could wreak economic havoc. Instead, the incoming administration and Congress should be looking for ways to increase exports without upsetting an economic system that on balance has proven beneficial.

In his most recent "Monetary Matters" column in Supply Chain Quarterly, Dr. Chris G. Christopher Jr., director-U.S. macro and global economics at the research and consulting firm IHS Markit, explains some of the risks associated with the backlash against trade and globalization that's gathering steam not only in the U.S. but also across Europe. He points out that while it's easy to understand why anxieties about trade and globalization are widespread, resistance to them is "misguided." "[E]fforts to limit globalization—through such means as protectionist tariffs—both raise prices and damage the competitiveness of domestic industries that import raw materials," he writes. Instead of focusing on globalization itself, Christopher continues, attention would be better spent on helping those hurt by it. Increasing access to higher education and job training, growing wage insurance programs, and adjusting income tax policies are just some of the ways that could be done, he suggests.

The economics of international trade are complex and, as we've seen, subject to vastly different interpretations. The opinions of those newly in power and the policy decisions they inspire have the potential to dramatically change the cost equation for the supply chains of manufacturers, retailers, importers, and exporters. As was demonstrated by the president-elect's interference in Carrier Corporation's plans to relocate a plant from Indiana to Mexico, that can happen with little warning. No matter what your feelings are about trade policy and globalization, some "what if" scenario planning might be in order.

Toby Gooley is Editor of CSCMP's Supply Chain Quarterly.

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