Trump’s Trade War Shocks Markets And Back Offices

The everyday goods of life increasingly come from everywhere. Tomatoes are shipped in from Canada, avocados and beer from Mexico, and cheap electronics and apparel from China. And that’s just across grocery and retail.

To make it all work, 365 days a year, the global economy needs to function like a well-oiled engine. On Saturday (Feb. 1), that engine threatened to slow down and sputter, as President Donald Trump announced the imposition of significant tariffs on imports from Canada, Mexico and China, marking a pivotal shift in U.S. trade policy.

The tariffs issued under International Emergency Economic Powers Act (IEEPA) levee a 25% bump on imports from Canada and Mexico and 10% on goods from China.

Trump also promised to introduce tariffs on European Union (EU) imports, but the timing around that action remains uncertain.

Global stock markets have experienced declines, reflecting investor concerns over potential economic slowdowns resulting from the tariffs. The news has also sent alarm bells ringing through back offices as businesses brace for the anticipated impact of the emerging trade war on supply chains and more.

Within the liquor industry, for example, the former three-way trading block between the U.S., Canada and Mexico was a cornerstone of the hospitality, travel and restaurant industries.

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Tariff hikes could rise from 25% to as much as 60% under the new U.S. administration, causing uncertainty for business leaders trying to sort out their budgets and pricing strategies. 

Automotive stocks, including major manufacturers like Toyota, Nissan and Honda, have seen significant drops sine the announcement of the new tariffs. The tariffs could increase vehicle prices in the U.S. by around $3,000, particularly affecting companies with substantial production in Mexico.

By the impacted percentage of sales basis, Volkswagen, which owns Mexico’s biggest car factory, is the most exposed automaker to tariff risk, followed by Nissan Motor and Stellantis.

Still, on Monday (Feb. 3), it was announced that the tariffs on Mexico would be delayed by a month.

The remaining tariffs are set to take effect on Feb. 4, although the situation remains dynamic, with potential for further developments as negotiations continue and affected nations implement their responses.

As Bloomreach CFO Ninos Sarkis told PYMNTS in an earlier interview: “You can’t control the geopolitical tensions, but what you can control is making your business stronger and more resilient during these times so that you come out the back of it a stronger company. … There’s a lot of relatively low-hanging fruit to make a business more efficient, more scalable and more automated.”

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Per a report, Canadian Prime Minister Justin Trudeau announced retaliatory tariffs that will impact U.S. beer, wine, bourbon, fruit, fruit juices, perfume, clothing, shoes, household appliances, sports equipment, lumber and plastics.

Industries that rely on cross-border trade, of which there are many, are likely to be those worst affected by the tit-for-tat tariffs.

The most immediate impact of tariffs is often felt in supply chains. Industries that rely on the seamless movement of goods across borders are particularly vulnerable. Tariffs, whether they are imposed on raw materials, intermediate goods or finished products, drive up the cost of production. For manufacturers, this often means higher prices for components, parts and materials sourced from countries involved in trade disputes.

Similarly, industries such as electronics, machinery and even pharmaceuticals are not immune to these pressures. The complex, global supply chains that these sectors rely on make them particularly susceptible to changes in trade policy.

The introduction of new tariffs often accompanies additional customs and import-export requirements, creating bureaucratic hurdles for businesses that previously navigated relatively straightforward trade routes.

In such a climate, businesses may need to find new suppliers or adjust their operations to mitigate the financial and operational strain caused by tariffs. The longer these trade tensions persist, the more difficult it becomes for companies to maintain stable, cost-efficient operations.

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