As President Trump begin his presidency on January 20, 2017, he vows to withdraw from the Trans-Pacific Partnership (TPP) free trade deal during his first day in office. This trade deal would have been the largest regional trade deal in history that involves 12 countries accounting for 40% of global trade. Withdrawing from TPP will re-shape the design of global supply chains in the near future. Essentially, the purpose of trade agreements is to reduce the barriers to trade between countries so as to stimulate exports of goods to the other partner countries. As more firms aspired to grow globally and to exploit lower labor cost in developing countries, the globalization of supply chains has caused the number of regional trade agreements has increased exponentially over the last 20 years.
Due to different trade agreements among different countries, the export quotas and the import duties can affect the design of a global supply chain. For instance, instead of importing a finished product from country A to country B, there are many instances that one can take advantage of certain trade agreements among different countries over certain product categories. For example, due to the savings of customer duties associated with different trade agreements, it may be much cheaper to (a) ship an unfinished product from country A to country C, (b) perform the final assembly operations in country C; and (c) ship the finished product from C to country B.
By exploiting the complex trade agreement among different countries (see figure below), there is a great opportunity for supply chain analysts to explore different trade agreements to evaluate alternative supply chain designs in order to reduce the “total landed cost” comprising cost of acquistiion, freight cost, customs and duties, warehousing and inventory holding costs. Essentially, as more countries enter more trade agreements, there are more supply chain design options to explore. Ultimately, more firms would need to employ more supply chain analysts to evalaute different supply chains.
While President Trump wants to withdraw from TPP, China, India and few other countries are pushing for an alternative trade deal that is known as the Regional Comprehensive Economic Partnership (RCEP). This deal is intended to reduce tariffs across Asia that are still high, and it covers over 33% of the global economy. Regardless which trade deal will come to light, trade agreements will continue to become more complex. I do not know which countries will benefit from these new deals, but I do know one thing for sure: supply chain analysts will be the winners! Bring the deal on!