MNI INTERVIEW: U.S. Supply Chains Seen Shifting on Trade Wars

By Brooke Migdon and Ryan Hauser

     WASHINGTON (MNI) - The outlook for growth across the U.S. manufacturing and

non-manufacturing sectors remains positive through the first half of 2020 but

still sits below forecasts from a year ago amid continued friction between the

U.S. and its global trading partners, industry experts told MNI Monday.

     Supply managers are mostly optimistic about the coming year, with revenues

expected to increase in all 18 manufacturing industries and 17 out of 18

non-manufacturing industries surveyed, according to the latest Institute for

Supply Management's Semiannual Economic Forecast.

     But global trade tensions, which have recently hampered month-over-month

growth in both sectors, could hold down annual growth.

     Although trade and tariff-related concerns have existed in the past, they

are "nowhere near where they are today," ISM manufacturing chair Tim Fiore said

Monday.

     A preliminary "phase one" trade deal between the U.S. and China has yet to

be reached nearly two months after it was promised, and the ongoing dispute

between the world's two largest economies has already caused global growth to

fall to its slowest pace in a decade, the IMF reported in October. The next

round of fresh U.S. tariffs on Chinese imports is slated to take effect Dec. 15.

     U.S. President Donald Trump said last week he would impose tariffs on

imported steel and aluminum from Argentina and Brazil over alleged currency

manipulation, while a new threats of tariffs on $2.5 billion worth of French

goods were also announced last week after duties were increased on $7.5 billion

worth of goods from EU member countries last month.

     --SUPPLY CHAINS

     Fallout from Trump's multiple trade disputes has forced some U.S. companies

to reevaluate their current supply chains, with 76.8% of manufacturers and 59.9%

of non-manufacturers reporting they were either evaluating new supply sources

and/or altering their existing footprint as a result of both U.S. and

counter-tariffs, according to the report.

     ISM analysts said this shift in supply chains is likely to last over the

"long-term" of two to three years, as there is a strong path dependency due to

the high cost of these moves.

     "As companies develop alternate sources of supply and they move those

supply chains, they tend to never go back," ISM non-manufacturing survey chair

Anthony Nieves said Monday. "It takes a lot of effort and due diligence to move

a supply chain over and companies don't want to put themselves in that position

again."

     The U.S. and key trading partners, like the EU and China, have recently

altered their supply chains in response to ongoing trade tensions. The EU has

begun to move away from U.S. information exports as the "contentious

relationship" between the two regions worsens, according to Nieves. China,

meanwhile, has started to rely more heavily on Brazilian soybean exports rather

than American ones, harming U.S. agribusiness in the process.

     "Fast forward three years from now to 2022; will that supply chain ever

move back to where it was?," Fiore said. "Just because you've lifted the

tariffs, it doesn't mean you're going to go back overnight. That's probably the

biggest risk to Chinese-U.S. trade."

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

--MNI Washington Bureau; +86 (10) 8532-5998; email: archie.zhang@marketnews.com

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