As trade wars continue to ravage global supply chains, companies must adapt to mitigate the risks. A balanced approach prioritizing innovation, social responsibility, and risk assessment can help build resilience in the face of disruptions.
Understanding the Impact of Trade Wars on Global Supply Chains
The 2018 imposition of tariffs by the US government on over $250 billion worth of Chinese products had a profound impact on global supply chains. The significant increase in taxes associated with buying from China led many American buyers to seek alternative suppliers, resulting in a decline of over 18% in transactions between US buyers and Chinese suppliers.
How Companies React to Trade Wars
Not all companies were affected equally by the trade war. Research found that Chinese firms that were more innovative or socially responsible were more likely to retain their US buyers, while buyers were more likely to distance themselves from Chinese suppliers with stronger local political ties. This suggests that companies that prioritize innovation and social responsibility are better equipped to weather trade wars.
The Role of Suppliers in Mitigating Trade War Risks
To boost their resilience in the face of trade wars, suppliers should focus on innovation and social responsibility. By doing so, they can reduce their dependence on US buyers and minimize the risks associated with trade war disruptions. This approach is supported by regulators who should encourage companies to adopt these strategies.
Buyer Considerations for Risk Assessment
Buyers should also consider their dependence on suppliers when conducting risk assessments and evaluating their resilience in the face of trade wars. By being aware of the potential risks and taking proactive steps to mitigate them, buyers can reduce their exposure to disruptions caused by trade wars.
The Importance of a Balanced Approach
A balanced approach that takes into account the needs of both suppliers and buyers is essential for mitigating the impact of trade wars on global supply chains. By prioritizing innovation, social responsibility, and risk assessment, companies can build resilience and ensure continued supply chain performance despite trade war disruptions.
Di Fan is an associate professor and assistant dean at the School of Fashion and Textiles, The Hong Kong Polytechnic University. His research focuses on sustainable operations management and global supply chain management.
Daphne W. Yiu is professor of strategy and entrepreneurship at the Lee Kong Chian School of Business, Singapore Management University. Her current research examines the relationship between socio-cognitive and affective institutions and strategic and entrepreneurial outcomes in the global and digital economy.
Pengcheng Ma is an assistant professor at the Renmin Business School, Renmin University of China. His research interests lie in multinational enterprises in emerging markets and firms’ internationalization strategies.
Lin Cui is a professor of strategy and international business at the Research School of Management, The Australian National University. Lin’s research investigates the interaction between institutional environment and firm strategies, especially in cross-border settings.
