Dr Linda Yueh, a renowned economist, broadcaster and Adjunct Professor of Economics for London Business School, discusses how supply managers can react to the major shifts in globalisation, trade and protectionism under Trump.
Yueh spoke with Philip Ideson as part of Procurious Even Bigger Ideas, a 5-part podcast series sponsored by State of Flux. You can access the series exclusively on Procurious.
As the world watches President Trump’s next move to discover which of his campaign promises he is likely to deliver on, Dr Linda Yueh hopes that the potential impacts on globalisation are being overexaggerated.
“It’s hard to see how any one country could turn back globalisation, because globalisation isn’t just about trade agreements. National borders have less meaning now than they did in the past. That being said, protectionist sentiment is certainly on the rise.”
Protectionism is costly to trade
Donald Trump successfully tapped into the feeling that globalisation hasn’t benefited lower-income, lower-skilled people as much as those of higher income and higher skills.
“Can this be rectified? If we’re starting a new phase of globalisation, there could be a reluctance to proceed at the pace we’ve had over the past couple of decades. If globalisation is going to work, we all have a responsibility to ensure policies around trade are more equitable so it doesn’t impact on any particular group.”
According to Yueh, the increase in protectionist sentiment around the world is likely to impact the cost of doing global trade. “Business need to be wary around protectionist sentiment being translated into additional customs checks, higher tariffs on exports and imports, or taxes on where a company locates its production.
Practically, protectionism can lead to enormous supply chain disruption. Goods or farm products can get held up at the border – for fresh fruit such as tomatoes, a few days’ delay can be devastating. Protectionism would only lead to higher costs, and ultimately that’s bad for the consumer because the cost will affect them”.
What about China?
Withdrawing from the Trans-Pacific Partnership is consistent with President Trump’s focus on American jobs, American wages, and his Made in America campaign. “Trump made it clear that America First is the overriding economic principle,” says Yueh.
“The TPP was going to link America with Pacific Rim countries and was part of the previous administration’s “Asia Pivot”, designed to increase their influence in Asia. The TPP didn’t include China so it was a way of asserting America’s role in the region. The big question is whether putting America first means withdrawing from international supply chains, leading to an economic impact that may not actually be so good for multi-national American companies.”
Yueh comments that there’s an indication from China that they may be willing to step into a stronger leadership position in the global economy as America withdraws.
“We’ve heard China’s views of globalisation from President Xi Jinping at the World Economic Forum in Davos. I’ve also heard from other Chinese policy-makers at various meetings around the world that China has always been reluctant to take a strong leadership position in the global economy. Their main focus has always been on domestic development.”
“If there’s a void, power will fill it. I think that’s essentially what we’re seeing. I would stress that the Chinese position is to support globalisation, because globalisation has helped its economy. It’s contributed to its remarkable growth, but they’re reluctant leaders – they’re not leaping into this space.”
In Yueh’s opinion, we’re unlikely to see a trade war despite Trump’s posturing on the topic. “I think there’s too much to lose for all counties. In reality, businesses will continue to sell to consumers all around the world. They produce overseas because that gives them a supply chain advantage. Political rhetoric won’t change this”.
How should supply managers react to uncertainty?
Yueh advises that procurement and supply management professionals should:
- Plan ahead for supply chain and market access disruption
- Follow closely the policies as they appear
- Look ahead to how you would reorganise your supply chain and the location of where you would deliver your services, depending on the industry that you’re in.
- Plan out scenarios that anticipate increases in cost and work out ways to grow the business taking into account potential disruptions.
“When we see big structural shifts in policy, it can take some time before we understand the impact on businesses. All you can do is to look at your strategy for the years ahead and be alert to policy changes, whether it’s around TPP, NAFTA or the timeline for Brexit, and plan scenarios accordingly. To quote a former British Prime Minister, “You hope for the best and plan for the worst.”
Procurious Even Bigger Ideas is a 5-part podcast series available exclusively to Big Ideas Digital Delegates. Sponsored by State of Flux, this series features interviews with five of the most intriguing power players at this year’s Big Ideas Summit in London.