Industry Voice: Planning supply chains in uncertain times

Since his first day in office, President Donald Trump and his administration have championed an "America First" trade policy, marked by fair (not free) negotiations with U.S. trading partners, unilateral tariffs in response to perceived unfair practices, and promotion of U.S. workers and businesses. As we approach the 2020 presidential and congressional elections -- and policymakers and businesses alike continue to grapple with the effects of the coronavirus pandemic on trade lines -- stakeholders are asking: What is on the horizon for global supply chains?

Trade in the corona age

Coronavirus' impacts on global supply chains were swift and severe. As shutdowns and stay-at-home orders spread around the world, manufacturers faced a one-two-three punch as their suppliers slowed production, shipping lines ground to a halt, and soon they too faced the same restrictions on operations.

Severe shortages of medical and pharmaceutical spread around the world, and many nations established limitations on exports of personal protective equipment in an effort to meet skyrocketing demand, in a wave of protectionist policies that would have been unheard of years earlier.

What comes next?

World leaders are only just beginning to respond to these shifts in supply chains, with many seeking to benefit from increased interest in limiting the world's dependence on one nation, China. Japan, India and Australia recently announced plans to launch a joint initiative aimed at promoting supply chain resilience in Asia, offering an alternative in light of escalating bilateral tensions between China and India, and China and Australia. In the United States, by contrast, stakeholders advocating "America First" policies saw these developments as vindication of the president's policies, suggesting that the response to the coronavirus pandemic may only expedite this internal focus.

After 2016 laid bare the deficiencies in pre-election polling, no one can speak with certainty as to the outcome of the November elections. But several larger themes are emerging as Americans head to the polls to choose between President Trump and Democratic nominee (and former vice president) Joe Biden, and the landscape for global supply chains may not change very much in the short-term.

Tariffs are here to stay: Should he win, do not look to Vice President Biden to immediately dismantle the various tariff regimes targeting commodities like steel and aluminum, and virtually all trade with China. He will focus first on a number of immediate crises. Regardless, China hawks and some domestic stakeholders will push for tariffs to stay in place -- and may use them as a bargaining chip in addressing concerns about China's human rights record. And if President Trump secures a second term, prepare for more actions targeting more goods from more countries.

Tensions with China will remain elevated: Vice President Biden is unlikely to herald any "restart" in relations between the U.S. and one of its biggest trading partners. "Tough on China" policies are likely to continue, but expect Vice President Biden to take a more multilateral approach to addressing concerns.

Both parties will continue to push for reshoring of high-priority products: Reshoring critical medical supply and pharmaceutical supply chains is a priority for Republicans and Democrats alike. The coronavirus pandemic has been a wakeup call for America that it needs reliable access to a number of critical products, and beyond the healthcare space. Reshored secondary supply chains will likely include those for defense- and national-security related products, high-tech electronics, and/or components considered at risk for counterfeiting. It remains to be seen whether the winner of the November elections -- both at the White House and on Capitol Hill -- will pursue additional policies aimed at incentivizing, or even mandating, these and other manufacturing supply chains return to the United States.

Sarah Rathke is a trial lawyer with Squire Patton Boggs specializing in manufacturing litigation, particularly complex supply chain disputes. She also provides counsel to manufacturers concerning their supply chain contracts, the applicable law governing international supply chain relationships, and the advisability of incorporating alternative dispute (arbitration) clauses into supply chain agreements.

Ludmilla Kasulke focuses her practice at Squire Patton Boggs on trade policy and regulatory issues. She counsels clients on a wide range of supply chain, tariff, and executive actions, including Section 232 national security tariffs, trade agreement negotiations and implementation, and the impacts these and other actions have on global supply chains.