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Like Most Things, It All Depends Upon Your Perspective
I’ve been asked a lot over the last month about the biggest surprises resulting from Trump’s trade policies.
The answer, as many answers do, depends upon your perspective. I’ve been speaking on VUCA – volatility, uncertainty, complexity and ambiguity – since 2018. By 2021, post-COVID, I recognized that disruption itself was the new normal. Supply chain VUCA, demand VUCA and lead-time VUCA combined to make supply chain failure a “normal” part of our lives.
But I also realized that it doesn’t have to be that way if trading partners build optionality into their supply chains. Accept the fact that Trump’s tariffs are accelerating us into the era of ReGlobalization. ReGlobalization done right can reduce supply costs, offsetting or even surpassing the costs associated with tariffs. (For more on how, see the section below on economics!)
Given all that, I need to answer the question from four perspectives: my own, that of a typical supply chain executive, the man-on-the-street and an economist. Each viewpoint reveals surprising insights into how the Trump administration’s policies are shaping the industry.
My View: A Master Class in Strategy
As I blogged earlier this week, I am pleasantly surprised by President Trump’s sophisticated strategy in deploying his policies. He does not approach policy with a rigid step-by-step plan.
Instead, he operates with an adaptable framework. When dealing with, say, Canada and Mexico, Step 1 might have three potential options depending on how the situation unfolds. Step 2 could expand into 12 different possibilities based on the reaction to Step 1. And his options continue from there.
This level of strategic flexibility demonstrates a true master class in negotiation. Instead of a traditional linear path, Trump’s methodology keeps adversaries and partners alike on their toes. He makes sure that the U.S. always has leverage in the discussion. This ability to pivot and adapt is a lesson that supply chain leaders could learn from when dealing with their own disruptions.
The Supply Chain Executive’s Failure to Prepare for Tariffs
What truly shocks me is the lack of preparation and proactive planning among supply chain executives. Everyone knew Trump would change the game on global trade policy. He has long been vocal about his preference for tariffs as a tool for reshaping international trade.
Despite this clarity, many supply chain leaders failed to anticipate these changes. Now they are reacting as issues arise rather than proactively adapting their strategies.
Chief supply chain officers (CSCOs) and vice presidents of supply chain should be ashamed. Instead of developing contingency plans, diversifying suppliers or building more resilient networks, most adopted a wait-and-see approach.
This lack of foresight is stunning. Supply chain disruption has been a problem for economic growth for years now. Companies who want to thrive in this environment must embrace optionality, agility and strategic foresight. Because by the time you react to external forces, it will be too late.
The Man-on-the-Street’s Hard Financial Lesson
On a broader level, I am surprised at how the average person is struggling to grasp a basic financial principle. When I was 10 years old, my father taught me that if you earn a dollar, you should spend 90 cents and save 10. If you earn a dollar but spend $1.25, you have a problem.
Well, U.S. society has been operating on an unsustainable financial model for too long. This goes for individuals, companies and the entire nation.
We have been running trade deficits, outsourcing production and neglecting the long-term consequences of these actions. Now that Trump’s trade policy has taken steps to correct this, people are suddenly alarmed. The need to rebalance our economic strategy should not be a surprise – it was inevitable. What is surprising is how few people saw it coming and how many are now resisting necessary changes.
How Economists Have a Flawed View of Tariffs
Many economists have taken a simplistic view of tariffs, claiming that they are inherently inflationary. While it is true that tariffs can increase costs in isolation, they never occur in isolation. Tariffs set off a chain reaction that includes retaliatory tariffs, negotiations, exceptions and delays. The actual impact of tariffs is far more nuanced than the textbook explanation suggests.
The reality is that tariffs may or may not be inflationary, depending on the broader economic context. They can leverage negotiations to secure better free trade agreements. Tariffs can encourage ReGlobalization, the redesign of supply chains to incorporate the world beyond China. Tariffs also can prompt Xshoring – a part of ReGlobalization that combines nearshoring, friendshoring, reshoring and technology upgrades.
Face it, transit times from China, the current factory of the world, are long. As mentioned above, nearshoring and reshoring bring production closer to the point of consumption, significantly reducing lead times. Shorter lead times lower carrying costs by minimizing inventory requirements. This frees up capital and reduces storage expenses.
So, ReGlobalization done right actually could lower overall supply chain costs – the exact opposite of inflation. And that doesn’t include the fact that short lead times increase supply chain resiliency.
Yet, many economists continue to make blanket statements. Instead, they should consider the complexities of how policies, including tariffs, might interact with global supply chains.
Final Thoughts on Trump’s Trade Policy
The Trump administration’s policies have revealed a series of surprises across multiple perspectives.
From my vantage point, I admire the strategic adaptability of the Trump trade policy approach. Yet I am disappointed by the failure of supply chain executives to prepare for foreseeable disruptions. From the viewpoint of the average citizen, I am surprised by the widespread resistance to fundamental economic realities. And from an economist’s standpoint, I am struck by their oversimplification of complex policy impacts.
As we move forward in this new era of ReGlobalization, one thing is clear: optionality is not optional, it is essential. The companies and leaders who recognize this reality will thrive in the years to come.
Having trouble figuring out where to turn in this topsy-turvy world? I would love to hear about your greatest challenges. Let’s talk and discuss a path forward that can succeed no matter the upcoming disruption.
Related Reading
- For Trump, It’s Leadership at the Speed of Business
- Dynamic Optionality Beats Expanding Your Supply Chain House
- ReGlobalization: Supply Chains in a Trump Disrupted World
Jim Tompkins, Chairman of Tompkins Ventures, is an international authority on designing and implementing end-to-end supply chains. Over five decades, he has designed countless industrial facilities and supply chain solutions, enhancing the growth of numerous companies. He previously built Tompkins International from a backyard startup into an international consulting and implementation firm. Jim earned his B.S., M.S. and Ph.D. in Industrial Engineering from Purdue University.