Tag Archives: President Trump

Should Procurement Pros Be Concerned About Global Trade?

Renowned economist and Big Ideas Speaker Dr Linda Yueh explains why CPOs needn’t panic about the President Trump administration but there are causes of concern. 

Register as an online delegate for the London Big Ideas Summit 2017 here.

Donald Trump made good on a campaign promise on the first day of his presidency by signing an executive order indicating the United States won’t ratify the Trans-Pacific Partnership (TPP) trade deal.

Though expected, the move caused a media storm and a flurry of responses from politicians and businesses all around the globe. But what does this mean for supply managers?

Many CPOs are understandably nervous about the Trump administration’s policies with regards to global trade. The resurgence of protectionism in the U.S., coupled with the continuing fallout and trade effects of Brexit, has left many procurement professionals wondering which region of the world they should plan to source from in the future.

The TPP was a massive free-trade agreement advocated by the Obama administration, aimed at deepening economic ties between the U.S. and 11 other Pacific Rim nations, cutting taxes, and fostering trade to boost economic growth in the process. Trump argued on the campaign trail that the agreement would be harmful to the U.S. manufacturing sector. As he signed the withdrawal order, he called it “a great thing for the American worker”.

Economist, broadcaster, author and Big Ideas Summit guest speaker Dr. Linda Yueh’s message to CPOs is one of caution but it’s not time to panic.

Don’t panic

According to Linda, there are three reasons not to panic about what Trump’s protectionist tendencies will mean for procurement, trade, and global supply chains.

  • We need to keep in mind that trade takes place under WTO rules. China is the U.S.’s biggest trading partner, despite no free trade agreement being in place. Of course, if Trump were to pull out of the WTO, then that would be a game changer. But, globalisation, especially e-commerce and the Internet linking markets and people, will mean that trade is likely to continue across borders as it’s hard to see a significant roll-back Costs of trade, of course, are another issue to be focused on.
  • Luckily, the Trump administration hasn’t honed in on e-commerce, which is good news for procurement and supply chains. Currently, one in ten transactions are already undertaken via e-commerce, and this figure will continue to grow.
  • Trump may have moved quickly to sign the TPP withdrawal order on his first day in office, but that wasn’t a formal agreement. Extricating the United States from NAFTA for instance will require renegotiation time and then a period of notice before that free trade agreement would end. Even then, most trade agreements include implementation periods, so a “cliff edge” is unlikely which gives businesses time to plan. Therefore, there’s no need to panic or overhaul your supply chain immediately. But, of course, forward planning and following economic policies would be wise. Also, take Brexit as an example – if Britain succeeds in triggering Article 50 in March 2017, then the UK is scheduled to leave the EU by the end of March 2019 – almost three full years after the people’s vote. And even there, the Prime Minister has indicated that there may be an implementation period to allow more time for businesses to adjust to leaving the Single Market.

Things to watch

So, Linda warns that supply managers should keep an eye on certain factors as global trade adjusts to these seismic political shifts.

1) U.S. border taxes – recently, Trump threatened BMW with a 35 per cent border tax on foreign-built cars imported to the U.S. market. This isn’t an isolated incident and American companies are under even more pressure to produce in the U.S.. Congress is also considering a similar tax, so that is worth bearing in mind as that would have the force of legislation.

2) U.K. Tariffs – one of the consequences of a “hard” Brexit where the UK leaves the EU without any preferential trade deal, which would include no agreement on the Single Market, Customs Union, is the re-emergence of customs for EU trade. Right now, significant customs procedures only apply to non-EU shipments. But, with around half of UK exports going to the EU, taking leave of Britain’s membership in the EU with no deal would means the end of free movement of goods. More customs declarations and duties would raise costs, slow down supply chains and certainly add time at border checks. A potential ‘hard border’ would be a particular issue for Ireland.

3) Resourcing Brexit – the UK Government also needs to think about the resourcing challenges involved in ramping up staff as well as IT systems to cope with the doubling of customs checks on the UK border.

4) NAFTA – As mentioned earlier, Trump has also flagged that the North American Free Trade Agreement (between Canada, Mexico and the U.S.) is up for renegotiation. If you’re a U.S. company, you need to start making plans now about how these changes will affect you. The same applies to any other of America’s free trade deals with 20 countries that Trump would have the authority to re-examine.

What about China?

Globalisation has helped China become a manufacturing powerhouse, but with numerous closed markets.

However, there are very good reasons to continue to do business with China. Wages may be rising but that helps businesses to think about China as a market as well as one production locale in a supply chain. Plus, with growing protectionism in America, China’s President has signalled that China may take more of a lead in globalisation. There’s a lot to watch for.

In short, Linda’s advice to CPOs around the world is keep calm, but keep an eye on the details as the globalisation landscape is shifting significantly. Global trade won’t end tomorrow but it will likely look rather different in the coming years.

Join the conversation and register as a digital delegate for Big Ideas 2017 in London.

What Would You Do If The President-Elect Criticised Your Supply Chain?

Major US organisations are starting to rethink their manufacturing strategies for fear of being labelled “un-American” by the President-Elect. 

Every US-based supply manager with outsourced supply chains should follow Donald Trump on Twitter. Why? Because for major companies with overseas manufacturing operations, there’s every chance that the President-Elect will label your organisation “un-American”.

Since November 2016, Trump has criticised companies including Ford, Toyota, GM, United Tech and, more recently, pharmaceutical organisations including Johnson & Johnson, Pfizer and Bristol-Myers for moving U.S. jobs abroad. His focus appears to be on companies outsourcing to Mexico and China, where historically low-cost labour enables organisations to manufacture their products at a competitive level.

Companies changing plans

According to a report from Reuters, boards of a number of U.S. companies that manufacture overseas have directed their public relations teams to plan a response in case the President-Elect singles them out on Twitter.

Similarly, some companies are reportedly re-thinking mergers and other moves that would involve outsourcing to China for fear of being cast as “anti-American” by the President-Elect. Ford has backed away from plans to build a $1.6 billion plant in Mexico, while United Tech has announced plans to keep half of the 2,100 jobs it was shifting over the border. Reports have also emerged of dozens of major organisations contacting government relations and PR advisors to assess if they have any “red flags” that would draw Trump’s attention and lead to a damaging Tweet being sent.

New risk metric: weighing national interest

According to the Reuters report, “corporate leaders can no longer focus only on maximising shareholder value; they must now also weigh national interest.” Essentially, being labelled as un-American has become a new risk metric that needs to be weighed against the cost benefits of overseas manufacturing.

Trump’s aggressive rhetoric against China may also lead to a reduction of outsourcing to the manufacturing powerhouse as the relationship between the two countries is expected to decline. Trump has also flagged high tariffs as another way in which he plans to move manufacturing jobs from China back to the U.S.

The effects of a Trump Tweet cannot be downplayed. Lockheed Martin lost $4 billion in value as share prices feel immediately after Trump criticised the organisation on Twitter, while Toyota saw $1.2 billion in value wiped in five minutes following a similar Tweet. Developers have even created an App to alert investors to Trump’s market-moving Tweets. This week, the nine biggest pharmaceutical companies that use manufacturing plants in Europe, Asia and Africa lost roughly $24.6 billion in 20 minutes during a news conference in which Trump singled out the industry.

Alongside potential losses in share value, coming under fire from the soon-to-be President puts organisations at risk of brand damage and consumer boycotts.

It is unclear whether Trump will continue to use Twitter to drive his “Made in America” agenda, or use more traditional tools to affect change such as policies and import tariffs.

What do you think about “Made in America”? Are organisations right to be wary of a tweet from Trump?  Let us know in the comments below. 

We’ve kept one eye on the news headlines from around the world this week…

Proliferation of “non-human workers” accelerates

  • Amazon reportedly placed 15,000 robots across 20 fulfillment centres in 2016, increasing its machine workforce by 50%.
  • Similarly, iPhone manufacturer Foxconn has replaced 60,000 Chinese employees with robots, while Wal-Mart is automating up to 7000 jobs, including roles in the accounting and invoicing departments.
  • In the U.S. alone, up to five million jobs are expected to be replaced by robots by 2020.

Read more at Supply Chain Dive 

Blood supply chain faces an uncertain future

  • Due to changes in medical practices, hospital demand for blood has been dropping steadily for the past decade.
  • The strong supply and weak demand for blood has led to a 10 percent drop in the cost of a unit of red blood cells in the US, with overall revenue for the blood banking industry dropping to US$1.5 billion per year in 2014, down from $5 billion in 2008.
  • S. blood banks are expected to lose 12,000 jobs in the next few years, or roughly a quarter of its workforce.

Read more at  The Conversation

 

President Trump and Procurement – The Impact

As the weeks unfold, we begin to get a better understanding of what impact a Trump Presidency will have on procurement.

There is, of course, no need to introduce the events of Tuesday 8th of November 2016 to readers. On that day, Donald Trump won enough Electoral College votes to be elected as the next President of the USA.

The implications for the procurement industry may at times be daunting and hard to anticipate. However this article should shed some broad light on some of the possible implications. Two of the main implications are infrastructure spending and trade deals.

In terms of Trump’s policy platform, detail is so often conspicuous by its absence. In his “Contract with the American Voter” however, he has outlined extensive policy proposals for his first 100 days as President.

Impact on Infrastructure

The first likely impact is infrastructure, which is one key tenet of this “contract”. Despite having far-right positions on many areas, Trump does have more centrist positions on some areas, especially infrastructure investment.

This may well boost the economy, albeit fuelled by debt, unless highly ambitious funding mechanisms come to fruition. He has vowed to spend $1 trillion on infrastructure over ten years. This would of course require huge procurement expertise for large road and bridge building and various other industries. We will have to wait and see what happens with building walls, however!

But the real impact of this expansive infrastructure spending would not be the huge procurement processes required, but more the method through which it may be achieved.

Whilst it is far from certain how the incoming administration could fund such a project, while providing perhaps the biggest ever tax cut, he would also need Congressional approval.

Public-Private Partnership Proposals

The infrastructure is not proposed as fully funded by the federal government, but largely through public-private partnerships (PPPs). If this sets a trend, the implications for funding of public services in the USA and other countries, especially developed market economies such as Western Europe, could be significant.

PPPs such as this have been generally successful in some cases and rampant failures in others. In the UK’s National Health Service for example, they have been a highly controversial mechanism. Many argue PPPs have fostered long-term financing issues, and harmed patient care and outcomes.

Further, many argue that the privatisation that PPPs cause brings about fundamental change to the relationship between the state and citizens. With this, public services are delivered based on promises of profit. For infrastructure investment to go ahead, it has to be based not on the gain for society, economy or environment, but where a surplus can be extracted.

Impact on Global Trade

The second main impact will be Trump’s influence on global trade, which is a driver of prosperity worldwide, alongside his threats of protectionism. Since the global financial crisis, cross-border trade has stagnated. This has been the longest period of stagnation for over 70 years.

Trump has an overtly protectionist stance. He has already threatened to hike tariffs on imports from China and Mexico, as well as pull out of the North American Free Trade Agreement (NAFTA) with Mexico and Canada.

In broad economic terms, this would increase living costs for domestic citizens. It would, without any doubt, be reciprocated by other countries such as China (as early noise coming from Beijing confirms). It would also affect jobs in export industries in the USA and the USA’s economy as a whole.

For public procurement in the USA however, this could also be significant. American public services could be restricted from products they currently source cheaply from abroad.

The increased costs from domestic purchases have to be made up from somewhere, such as savings in other areas, purchasing lower quality goods or increasing costs for users of public services.

The same could be true in Canada and Mexico. If the USA pulls out of NAFTA and applies tariffs on Mexican and Canadian goods, reciprocal protectionism would restrict Canadian and Mexican access to high-quality goods and services sourced from the USA.

Global Impact

Outside North America, the implications could also be significant for procurement professionals around the world. President Obama has been pushing hard to ratify the world’s largest ever free trade agreement – the Transpacific Partnership (TPP).

This opens procurement markets, and removes tariffs, between 12 countries, including Australia, Japan and Vietnam. Trump has confirmed he will cancel this deal on his first day in office. This will deny public procurement across all participating countries the opportunity to increase procurement competitiveness and reduce sourcing costs. It’s also likely to decrease the choice of the goods and services available for purchase.

The same is true with the Transatlantic Trade and Investment Partnership (TTIP). The trading impact of TTIP, between the USA and European Union, would have been huge. Whilst talks reached an impasse in 2016 when negotiating procurement market access, Trump is likely to be the final nail in the coffin.

TTIP again would have been a boon to procurement teams in all countries, with increases in competition and decreases in price for all countries. This would have provided European contracting authorities with tariff-free access to high-quality American goods and services and vice versa.

Despite the threats of uncontrolled climate change and protectionism, the impacts of a Trump presidency are really yet to be known. Yes, Trump may have secured his “contract” with the American voter. But the contract will be re-tendered in under four years. The outcome of that really is unknown.

An Expert’s View on the Future of the UK Economy

The media have painted a gloomy future for the UK economy thanks to the events of 2016. But one is breaking ranks – and it’s not all bad news.

A few weeks ago, Procurement Heads enjoyed an insightful business breakfast hosted by the Chilworth Partnership & Venture Recruitment Partners at the Chilworth Manor Hotel. While we were there, we heard from one of the UK’s leading economic commentators, Alex Brummer.

Brummer has been City Editor at the Daily Mail since 2000 and is a multi-award winning economic finance commentator. Brummer was speaking on the topic of Brexit and the potential impacts on the British economy.

To add further spice, there was also the topic of “Trumpenomics” to discuss after the much-publicised US election result. Brummer is no fool, and whilst he was pro-Brexit, he empathised with the shock both events have caused.

Sense of Optimism

Despite the doom and gloom from his peers in the media, there was a sense of optimism from Brummer. He described the UK economy as “having taken the punches pretty well”.

Indeed, in the 3rd quarter we have seen growth at 0.5 per cent. Additionally, we are likely to see annualised growth in the UK of around 2 per cent. This is a faster rate than any of the Group of Seven (G7) countries.

From a recruitment perspective, there is much to celebrate as well. The unemployment rate has dropped to 4.8 per cent, and the number of people in employment is at its highest in 30 years.

Whilst the Chancellor’s Autumn statement next week will likely reveal a dampening of economic expectations, Brummer asserted that infrastructure investment in the 3 ‘Hs’ will boost the economy in time – Hinckley Point in Somerset, HS2, and the expansion of Heathrow.

UK Economy “Punching Above its Weight”

Back to Trump in the US. Brummer argued that his pledge to reduce corporation tax from 37 per cent, and a massive increase in infrastructure spending, will see the UK’s burgeoning Services sector well placed.

In this respect, he asserted that the UK ‘punched well above its weight’, operating at an annual surplus of £100 billion. Only time will tell just how this new political and economic relationship between Britain and the US will work.

One thing is for sure is that Brexit certainly hasn’t been an immediate disaster, reflected by the strong performances of the FTSE 100 and FTSE 250 since June. Brummer claimed a lot of this is down to businesses bringing their operations, and therefore more of their investment, back to Britain.

Tangible example of businesses positive reaction to Brexit can be seen at Nissan, Ford and more recently Google, all making positive long term commitments to the UK. More businesses investing in Britain is surely a good thing for our employment?

Challenges to Come

Brummer warned of the failings of Europe, describing the EU as an “Economic disaster”. And the facts are scary:

  • Greece’s GDP has dropped by 25 per cent,
  • Youth Unemployment in Italy is now at 37 per cent, and
  • Growth since Germany joined the EU is stagnant.

Brummer did not underestimate the UK’s adjustment to Brexit and nor should we. But perhaps we should try and look at the positives of the events of the past few months.

There are challenges to come, like the possibility of a trade war, Trump going back on his economic policy, and the Pound weakening a lot further. Like many in the room, we came out with some reasonable optimism to see this not as a problem but as an opportunity.

To quote Brummers’s closing remark we should “see the glass as half full, not half empty”.