Trump said ‘trade wars are easy to win’ – then the supply chain collapsed
During a downturn or correction in the US economy, the supply chain has never collapsed and many wonder – what happened this time around?
Well, for those engaged in the retail world, it remains painful to hear experts philosophizing about container ships floating off the coast of California. The facts about the moored ships tell a different story and yes, it is probably too late to unload the containers and recoup the entire holiday sales season. That doesn’t mean everything will be horrible. It only means that it won’t be as good as retailers had hoped, and that there will be markdowns in the sales season after the holidays. Perhaps even more telling is the realization that America does not own or even control its supply chain.
Remember when former President Trump decided to manually change our trade balance with China? In doing so, he probably ignited the spark that started this container crisis. The former president thought he was making a logical move at the time. He probably estimated that if his administration started a trade war, China would end up buying more US exports and tariffs would slow the inflow of Chinese goods (by raising prices). The trade deficit would shrink and that would be a boon for America, proving to be an improvement for our economy. Months and months later, the balance sheet is unfolding in the public forum and it’s clear the reverse has happened, even with the phase one trade deal in place to help our outbound goods. US exports began to fall and demand for Chinese imports continued to increase. Of course, there were other factors affecting the overall picture, but the American consumer is now struggling to find products, paying more for everything they buy, and all of this activity is fueling US inflation.
If President Biden took over our supply chain in July (when it really mattered), or if his administration hadn’t pumped so much money into the economy, we might not be in this mess. for the moment. However, as the Biden team has announced a “90-day sprint” to resolve the supply chain issue, retail doesn’t really expect to see any significant improvements that would affect the all-important buying season. festivals. There just isn’t enough time to move all of that cargo around and unfortunately what you see – is probably what you get – meaning things probably won’t get much better. With any luck, the supply chain could perhaps recover by the middle of next year. In the meantime, it’s the take as the take can and, of course, consumers should shop early and buy what they can. However, fear not, the big retailers have protected themselves – whether it’s shipping by air or by charter ship. The big guys will get away with it, it’s just that the small retailers will be crushed again. At this point, you can assume that the Grinch has already done what he wants and that your ugly Christmas sweater will surface by Valentine’s Day. If for some reason you want an Easter beanie, this might be a good time to place your order.
A significant clue to the supply chain conundrum lies in testimony at a USTR hearing at the International Trade Commission on President Trump’s Section 301 tariffs on China. Having had a front row seat at the hearings, many in the room found it interesting that the gigantic dock gantries (which unload containers from ships at US ports) are often made in China, and US ports demanded the Trump administration to have them exempt from tariffs. The cranes cost around $ 25 million each, and the ports wanted them removed from the tariff list, simply because it was bad for business. As soon as the dock gantries were removed from the tariff list, another equally large group was left to wallow in the mud. Everyone knows America runs on wheels, and the very large group of “chassis” (which carries containers on the road) ended up with high Chinese tariffs – primarily to protect US domestic manufacturing. Each chassis costs around $ 11,000 – and we constantly hear that there isn’t enough chassis to handle all the cargo. This is a classic example of what happens when you play with fire someone or an entity ends up getting burned.
In addition to tariffs, former President Trump also turned down the sale of one of the port of Long Beach’s marine terminals – as it was being sold to a Chinese company and it seemed like an oxymoron during a war. commercial. When this situation arose, many realized that Trump’s stopping this transaction was a logical national security move, but some also began to question the ownership of other terminals in our US supply chain. .
It turns out, with just a little research, that the supply chain employs several thousand American workers. However, of the top 30 shipping companies carrying goods across the seas, only one is headquartered in America. The 7 largest carriers do not belong to the United States and control 77% of the market.
When a container ship docks, you’d think we own that part of the equation, right? Well, not exactly, it turns out that the ports of Los Angeles and Long Beach (which handle 40% of US inbound containers) are considered âownersâ for several marine terminals that handle cargo privately. The Port of Long Beach has six separate container terminals and the Port of Los Angeles has seven. They each have different owners, some are based overseas, and all are leased to the ports.
Given that so much of this supply chain turns out to be in private hands, you might wonder – which federal agency controls the process by which they do business? The Federal Maritime Commission (FMC) is the responsible agency, but it does not have direct authority over the flow of goods. Their mission is to protect US shippers from the unfair practices of ocean carriers, freight consolidators and port terminal operators. In July of this year, the CMF signed a memorandum of understanding with the Department of Justice to work on antitrust and competition issues.
As for the workforce in the west coast ports, they are represented by the International Longshore and Warehouse Union whose contract, by the way, is due to be renewed next July. This should be of interest to those who study the supply chain – and to those concerned about the unhindered flow of goods.
As you can see the supply chain is really complicated and it’s now easier to see why Gene Seroka, executive director of the Port of Los Angeles, said President Biden’s 90-day sprint was “a call to the action to follow for others “. Mr Seroka also commented on the port’s rapid start-up to move operational management to 24/7: âIt’s not a single lever that we can pull to open all the doors,â he said. he declared.
The Trump administration has said time and again that buyers should leave China or at least reduce their exposure. In 2019, the former president made a politically forceful, but unrealistic statement: “Our big American companies are ordered to immediately start looking for an alternative to China, including bringing your businesses home and manufacturing your products. in the USA.”
In the apparel world, the truth is that only 3% of assembled garments are made in the United States, and China’s market share remains the largest at 37%. The reason for China’s success in the U.S. market (and sourcing companies that don’t venture elsewhere), is that China continues to deliver quality products on time – while Vietnam struggles with the COVID, Myanmar has staged a coup, Ethiopia has a problem with Tigray – and Bangladesh, India, Indonesia and Cambodia will take years to develop.
Given former President Trump’s marching orders to find an alternative supply, finding a product for a very discerning American consumer has proven to be quite a challenge. Millennials and Gen Z want items that are sustainable, devoid of human rights issues, environmental issues, and of course they want them delivered the next day. Sourcing companies have now expanded around the world in an attempt to diversify their base and deliver efficiently from multiple locations. Obviously, it has become a mind-boggling experience, which is also fueling the traffic jam off the California coast. Too much product is coming in from too many places – while ships try to dock in places we don’t own or control. President Biden has commissioned competent people to look into the problem, but there’s not much they can do except explain that we’re winning.
Some U.S. consumers are currently stocking up on batteries for the holidays – suggesting that the contingency plan for the current covfefe supply chain – is to put batteries under the tree, with a note that reads: “toys and l electronics are on the waterâ¦ .. “