Global Supply Chain: US Supply Chain Managers Should Be Reviewing Potential Changes to Trade Policy if Democrat Wins White House

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- May 20, 2008 -

Global Supply Chain: US Supply Chain Managers Should Be Reviewing Potential Changes to Trade Policy if Democrat Wins White House

In Recent Past, Tough Talk on Trade has Rarely Led to Action, but Maybe Not This Time; China Currency Revaluation May be Key Target, Raising Cost of Imports

SCDigest Editorial Staff

SCDigest Says:

Among the areas both Democrats want to see action – alleged currency manipulation by China that keeps the prices of exports to the US artificially low, in the view of some.

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Since John F. Kennedy, every US president has largely governed as a free trader, despite occasional tough talk on trade or picking on a small number of trade issues upon which to act.

If either of the Democratic candidates for president (Barack Obama or Hillary Clinton) win the White House, it is likely this usual scenario will change, and real trade barriers may be enacted – something supply chain and sourcing managers should ponder now in terms of their medium-term supply chain strategies. Republican John McCain, in general, is bullish on the benefits of free trade and unlikely to support protectionist policies.

Both Obama and Clinton have taken shots at the North American Free Trade Agreement, for example, and have said they would press for largely unspecified changes to make NAFTA more “fair” for US manufacturers and workers.

But experts predict a Democratic victory will presage a variety of other trade policy changes as well.

Among the areas both Democrats want to see action – alleged currency manipulation by China that keeps the prices of exports to the US artificially low, in the view of some.

Other presidents in the past have raised the protectionist flag on the campaign trail, and even free trader George W. Bush, for awhile, raised tariffs on foreign steel imports to give US steel producers some room to regain competitiveness. But, in general, free trade has reigned for almost 50 years.

However, it appears likely that this campaign’s talk will actually turn into policy action if a Democrat wins. Several Democratic protectionist candidates won Congressional seats in 2006, and the party has fielded others of the same mind for 2008 runs. If they too are successful, that will put pressure on a President Obama or Clinton to make good on campaign rhetoric. Some industry groups, such as The Alliance for American Manufacturing (which represents steel industry interests) have been stirring the pot with aggressive campaigns of their own. The group’s tag line – “Pinning them down on global trade, one question at a time.”

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Voter opinion is also morphing, with increasing concern about jobs lost to “outsourcing” in recent years, now exacerbated by an economic slowdown that makes voters more testy generally.

In addition to the China currency issue, experts expect either Democratic candidate to attempt to tie trade agreements to various commitments by other countries - allow for unionization, improve working conditions, and raise labor rates – conditions many may be unable or unwilling to adopt. If so, tariff increases or other barriers to trade with those countries could go up.

To some extent, the horse is already out of the barn, as US participation in the World Trade Organization (WTO) puts limits on the amount of protectionist policies the US can adopt, and neither candidate is endorsing pulling out of the WTO.

In a recent Wall Street Journal story, Allstate CEO Thomas Wilson argued that “After the campaign, they [Obama or Clinton] will see their ability to control these economic forces is not great.”

Still, it would be prudent for companies to review current global sourcing activity or strategies under consideration to see which ones could be impacted by changing trade policies.

“If your net savings from a potential move to China are barely over the threshold you set, you might want to hold off to see what way the wind is likely to blow,” said SCDigest editor Dan Gilmore. “We could see some action that will raise effective costs by some percentage points.”

Do you expect to see important changes to trade policies if a Democrat wins the White House? In what ways? What should sourcing and supply chain managers be doing now to review the potential impact? Let us know your thoughts at the Feedback button below.