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Pandemic Disrupts Global Supply Chains

Posted on April 1, 2020

Companies across the globe are experiencing major supply chain interruptions.  The US plans to provide tariff relief delays of 90 days to companies looking to conserve cash.  G-20 countries have agreed to be cautious about restricting the flow of medical supplies and pharma products.  And the USMCA is delayed again.

Supply Chain Disruptions—Global supply chains have become increasingly complex, with components and finished products often crossing multiple borders before reaching end users.  Today, coronavirus shutdowns have made it difficult for many manufacturers to get parts, delaying production.  Demand for some products has skyrocketed and many companies do not have enough finished product on hand to meet customer needs.  Demand for other products has softened.  Firms are pursuing different paths to maintain their business.  Learn more in AIM’s free “Global Trade & Supply Chain Disruptions” webinar April 30 at 11am.

Freight Movement—With domestic and international flights declining, it’s becoming increasingly expensive for companies moving their products by air to find reasonable solutions.  Some US airlines are now converting some passenger flights to cargo-only, though this is not a long-term or cost-effective solution.  Reports are that ocean freight is still moving, though worldwide port traffic is down significantly, with Shanghai down 20 percent, US ports reporting similar decreases, and major ports in Europe experiencing slowdowns.

Medical Supplies, Export Restrictions and Domestic Manufacturing Requirements —Many countries are considering or implementing domestic supply chain requirements, hoping to increase local manufacturing and decrease dependence on foreign suppliers.  Trade officials from all G-20 countries met earlier this week and committed to “take immediate necessary measures to facilitate trade in essential goods (medical)” and to ensure that emergency measures undertaken to restrict trade would be “targeted, proportionate, transparent and temporary.”  The US has considered, but not yet ordered, a Buy American provision that would require government agencies to purchase medical and pharmaceutical supplies only from domestic suppliers.

Tariff Relief—Multiple sources report that the Trump administration will announce it is delaying collecting tariffs on many imports in order to provide relief to US companies.  The 90-day reprieve will apply to many, but not all, imports that are currently tariffed at rates ranging from 10 to 25 percent.   Last month the US lifted tariffs on many medical supplies from China, which is the largest exporter of global medical supplies in the world.  The US is also dependent on medical supply imports from Mexico and Germany.

USMCA—Implementation of USMCA has now been pushed back to at least July 1 because none of the three countries has been able to focus on designing the detailed regulations required to support the new agreement.  This delay is good news for automobile manufacturers; that industry sector faces major changes as North America moves from NAFTA to USMCA.