After major tariff announcements in April, escalating and then de-escalating rates between the US and China, and a temporary “pause” in the rest of the world, US tariffs are entering a new phase. The tariffs announced by the US administration in recent months have led executive teams around the world to reexamine their supply chains and markets and to reconsider the framework of global trade.
US tariff policy has more clarity than in April, and relative risk levels across trading partners are emerging. However, exact tariff rate for any given product and country remain subject to change and renegotiation over the coming months and years, and the full details on individual deals have yet to be released (or agreements signed). Retaliatory tariffs, though relatively limited to date outside of China, may yet create escalatory cycles and the secondary effects on world trade outside the US are only beginning.
Companies have now largely recognized that the period of trade liberalization, which took off in the 1990s and has been a defining element of global business, is drawing to a close. This extends beyond US policy: The era of ever-freer trade and connectivity has been fragile for years and is now moving rapidly into reverse (see Figure 1). Canada, South Korea, the European Union and others are using tariffs on Chinese steel and electric vehicles in particular, signaling a broader rise in global protectionism beyond the US. The companies that thrive will be those that can quickly retool for a world in which the free movement of goods, capital, IP, and people cannot be taken for granted.
To adjust to the new normal, all companies now need to reset their commercial and operational efforts within a post-globalization strategy. Uncertainty will persist, and companies will need to invest in adaptability and resilience to handle it. For those that rely on globalized supply chains for goods, matching supply and demand cost-efficiently is now much more critical, with trade policy and uncertainty pushing companies to look for suppliers closer to home.
Amid shifting supply chains, excess capacity from China and other large exporters will seek new markets, possibly leading to a glut of products in some markets and sectors, with potential for protectionist shifts around the world aimed at shielding domestic industries. Companies also will need to prepare for demand swings, as tariff policies and macro conditions continue to shift.
Firms must take this moment to reassess their operations and commercial focus and adopt a long-term view. Companies around the world need to plan beyond tomorrow and create a blueprint to thrive in the longer term, factoring in continued flux in trade policies and regimes—not just in the US, but globally. Although the shock effects from the scope and size of the announced tariffs are commanding attention, the knock-on effects could be more profound.
Read the full article by Karen Harris and Jeffrey Crane / Bain & Company
