By Simon Bowes, CVP Manufacturing Industry Strategy EMEA at Blue Yonder.
Since the US election, businesses are racing to work out what impact tariffs could have on their supply chains. For some European industries like pharmaceuticals, imposed tariffs may impose a catch-22 dilemma: either bear the cost of relocation or absorb the tariffs and face increased costs for manufacturers and consumers. Other sectors like luxury goods, should be less impacted as there’s fat in the system that can absorb costs.
For European automotive companies, the threat of tariffs is much more significant. The industry is already struggling due to competition from China, the withdrawal of electric vehicles (EVs) subsidies in key markets, and the ongoing transition to European sustainability regulation. As the US is a critical market for European car makers, tariff threats are sending the industry to boiling point – and if placed on internal combustion engine vehicles (ICEVs), it would put a tin lid on everything that’s going bad for the industry. Increasingly, automotive businesses are having to plan for a potential future with dramatically reduced sales to the US.
As tariff threats loom, businesses critically require flexible tech-led capabilities to execute strategies quickly. Supply chain management tools enable companies to evaluate and model different scenarios to calculate the impact of tariffs on business profitability. This scenario planning can be extremely complex, especially in today’s volatile global trade environment.
However, artificial intelligence (AI) can evaluate vast amounts of real-time data. Working like a GPS system, it simulates ‘what if’ scenarios tailored to different variables, meaning businesses can strategically decide the best course of action, whether that is using new suppliers, using a co-manufacturer, or absorbing tariff costs. While it feels impossible to predict if tariffs will be imposed on Europe, businesses should have a plan ready to go with every scenario.
Will other countries retaliate?
If US tariffs are imposed, it could set off a chain reaction across the globe. This could limit the ability of companies to leverage the global specialisation and expertise that currently drives international trade. For instance, the world’s reliance on Taiwan for semiconductors or Germany’s expertise in automotive engineering would become more complicated if countries erected barriers against each other. The rise of tariffs would likely stifle competition and innovation, and while some industries could benefit from protectionism, others would undoubtedly face higher costs and reduced market access.