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Global supply chains are set to change from outcome of US-China trade talks

Global supply chains are set to change from outcome of US-China trade talks

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The hope for a deal in US-China trade negotiations has been pushing the stock market higher. But the past two years of escalating rhetoric, tariffs, and counter-tariffs has exposed the political risks of having a geographically undiversified manufacturing footprint.

While potential new tariffs and restrictions on trade would certainly force changes, uncertainty about it has become the new normal. This is driving a major rethink of global supply chains. So whether the two countries come to a deal or not, some major changes are already afoot, and these promise to change the shape of trade between the two countries.

The global trade environment has been relatively benign for the past four decades, with steadily declining tariff and nontariff barriers. The rapid development of emerging markets, especially China, has encouraged manufacturers to source beyond their traditional borders. Today we have a world crisscrossed with complex global supply chains. You might be reading this on a laptop assembled in Shanghai with memory chips and a flat panel screen made in Korea, numerous other chips that were designed in California and manufactured in Taiwan, a microprocessor chip that was packaged in Chengdu, China from a semiconductor wafer that was manufactured in Hillsboro, Oregon using a lithography machine that was assembled in the Netherlands that incorporated an optical engine made in Germany. If that made your head hurt, you can take an ibuprofen tablet that was made in India using precursor chemicals from China.