The business of international trade has become extremely complicated. Due to Covid-19, global supply chain disruptions have become commonplace, especially in China. And even when the risks associated with the pandemic end, the risks associated with supply chains won't.

Tariff wars, trade tensions and global protectionist trends, which accelerated under the Trump administration, will remain elevated for some time under the Biden administration. And although fears of decoupling the two economies may decrease, trade in sensitive technology sectors will continue to be scrutinized, possibly disrupting more business.

What are U.S. companies thinking? According to a post-U.S. election survey conducted in November by AmCham Shanghai of U.S. firms operating in China, 28% of respondents said U.S.-China trade tensions would last one year or less; 30% said they would last indefinitely.

Due to uncertainty and volatility in the relationship with China and other trading partners, it's wise to consider the following three critical survival strategies:

It’s not the strongest or the most intelligent of the species that survives, it’s the one that is most adaptable to change.

(1) Do not rely on any single source of supply or any one country. And if buying solely domestically, know if your suppliers are importing your products and from where.

(2) Just-in-time inventory strategies will continue to become just-too-late failures. Consequently, it's important to expand stock reserves in varied locations as insurance against future supply chain breakdowns.

(3) There are 3.8 billion middle class consumers worldwide. This figure will rise to 5.7 billion by 2030 with the vast majority living in China and other Asian countries. Moving forward, it's essential to pursue the Chinese market, but don’t entirely rely on it. Continually pursue other markets as well.

In The Spotlight

Even if trade tensions diminish and the risks of Covid-19 end, the strategy of not relying on any single country shouldn't be shelved. Future pandemics will continue to be a concern. But it's also essential to protect against "black swans," a term coined by the author Nassim Nicholas Taleb when referring to improbable events with severe risks that are impossible to predict and difficult to avoid.

One of the most memorable black swans occurred in March 2011. An earthquake in the Pacific Ocean created a tsunami that flooded and knocked out power to the Japanese Fukushima nuclear powerplant causing a severe accident. If your supply chain involved that region of Japan, it was in trouble. The lesson: you can't rely on any one source or location.

Buying in smaller volume from several suppliers in varied locations is more expensive than buying at scale from a single source. And warehousing more inventory at different addresses and continuously pursing new markets adds considerable costs. But in today's highly volatile world, risk mitigation has become more important than efficiency gains.

In this environment, sourcing products from China and other countries isn't easy. In fact, I'm often asked why we can't just bring all manufacturing back home. My answer is twofold.

Firstly, we don’t have enough workers to produce more goods. In fact, we currently have a shortage of 6.5 million now and getting worse, according to the Bureau of Labor Statistics.

And secondly, manufacturing more goods not rich in intellectual property, like toys and clothes, would boost retail prices to the point where many lower-income families would not be able to afford them. In turn, our overall standard of living would fall.

In the years ahead, U.S. companies need to be agile, cautious and engaged internationally. And very importantly, they should heed the words of Charles Darwin, who said it’s not the strongest or the most intelligent of the species that survives, it’s the one that is most adaptable to change.

This article was published in 44 markets by American City Business Journals.

John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.

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