With geopolitical tensions in Europe and the Middle East and tensions between China and USA, there is an imminent danger of complete supply chain disruptions to a significant extent. Major disruption will be on global supply chain volumes. Disruption in one mode would lead to trouble into another mode of transport.
On 1 February 2025, the USA imposed 25 per cent tariff on all imports from Canada and Mexico. President Donald Trump went on to warn the entire world to reduce excessive tariffs they imposed on USA imports, if not they will face retaliatory tariffs.
The same witnessed retaliatory measures from the two neighbouring countries post which the announcement by the USA government was withdrawn. However, the USA justified the move saying it is to overcome trade deficit and protect their borders.
With the ongoing geopolitical tensions in Europe and the Middle East and tensions between China and USA, there is danger of complete supply chain disruptions. Yet, this is not a one-off incident. Over the years, the world has witnessed trade wars multiple times and they have reshaped global trade dynamics to a significant extent.
Impact on logistics
The major disruption is on the global supply chain volumes. Every time a disruption occurs in one mode it would always lead to a transformation into another mode of transport. For example, Houthi attacks in the Red Sea region paved way for rise in air cargo volumes in the region as a complete turnaround through South Africa was not only expensive, but also time consuming.
For the past few months, the trade lanes between Europe and Asia-Pacific as well as Middle East and North America have witnessed continued growth. Escalation of these tensions could lead to global disruption causing a blow to all economies.
Tariff wars
Tariff wars are not new to the world. In fact, some economists would go far to say that Smoot-Hawley Tariff Act, 1930 is the reason for worsening of the great depression during the same year. When the USA imposed 60 per cent tariff on selected goods, other countries retaliated with similar tariffs.
Disputes existed between countries and alliances, which made way for war in the past. And when such escalations took place, the logistics industry was the first to face the negative impact. When a country imposes high retaliatory tariffs on another or a few, shipping costs increase. The defending country will start looking for new markets or will look forward to rerouting cargo movement through other means.
Over a period, this would lead to a reduction in trade volumes and decreased economic growth. In a nutshell, countries would realise the impact of tariffs only when the logistics industry takes a hit.
Surviving tariff wars
Irrespective of tariff wars, many nations have survived and even surpassed the current trade volumes to an extent. Before the pandemic, USA imposed sanctions on Chinese imports. Yet, China survived because they have a robust ecosystem to move cargo across the world. The downside is this survival is not long-term and in case of escalations, the ripple effects would be larger than what it is currently, and stakeholders will be forced to undergo losses thereby posing a threat to business continuity.
Leveraging technology
Technology can help EXIM stakeholders navigate and mitigate the challenges posed by tariff wars. Advanced data analytics enable businesses to assess the impact of tariffs and model various scenarios, assisting in strategic decision-making. By leveraging real-time trade data, firms can identify alternative markets, optimise supply chains and reduce dependency on regions heavily affected by tariffs.
Automation in logistics, through AI and IoT, improves inventory management and optimises transportation routes, helping businesses adapt swiftly to changing tariffs and trade dynamics. Cargo Community Systems and Digital Trade Corridors will be a major differentiator for the LSPs as they could provide a proper framework to operate during difficult times. Integrating them could be beneficial for EXIM stakeholders.
