How the US Election Could Impact the Supply Chain
By Lisa Anderson
The economy is facing headwinds with high inflation, interest rates and concerning employment numbers. The world is on high-risk alert with the Russia-Ukraine war and the Israel-Hamas war, which has expanded to Hezbollah. Iran backs Israel’s enemies as well as the Houthi rebels that have been attacking container ships in the Suez Canal. China has been threatening Taiwan and the South China Seas. In addition, there is a plethora of other issues such as CrowdStrike, aerospace challenges, the threat of strikes, shortages and weather events. The bottom line is that businesses are navigating volatility, uncertainty, complexity and ambiguity (VUCA), and they are looking for stability. With this backdrop, will the election create calm or further disruption in the supply chain?
From an economic standpoint, Trump’s pro-growth policies are likely to stimulate business investment. According to the Wall Street Journal, the Tax Cuts and Jobs Act (TCJA) of 2017, the largest corporate tax reduction in the history of the United States, resulted in a domestic investment increase of 20 percent. In essence, it resulted in more business investment, more growth and more wages for workers with little impact on government revenue since the taxes were offset by an expanding economy. Harris has not formally stated where she stands on taxes; however, common thinking is that she is unlikely to support the continuation of these tax cuts (that expire in 2025).
In terms of government spending, both parties will increase spending on infrastructure since it carries over from the current administration. Trump supports manufacturing in the U.S. and plans to incentivize that by expanding energy, thereby decreasing the price of energy to make the U.S. more competitive while extending corporate tax incentives. The Biden-Harris administration supports manufacturing in the U.S. and has provided incentives such as the CHIPS and Science Act to encourage investment in semiconductor manufacturing.
Tariffs were ramped up under the Trump administration to incentivize fair trade and encourage domestic manufacturing, and Trump has said that he supports reciprocal tariffs in a second term. The Biden-Harris administration kept Trump’s tariffs in place and added EV tariffs. Thus, tariffs are likely to be used as a tool to support economic security.
Given the high risk associated with China, businesses are searching for alternatives. In addition to the need for economic security, with automation and advanced technologies lessening the impact of labor costs, a competitive tax rate, the availability of energy and natural resources and geographic proximity to customers, the United States has become more attractive. Thus, businesses are reshoring. According to the Reshoring Initiative, the 2023 job announcements due to reshoring and foreign direct investment was the second highest year on record. Nearshoring, locating manufacturing close to customers, is also rising with the focus on Mexico and Latin America especially for high labor-cost products. No matter who wins the election, regional manufacturing (reshoring and nearshoring) will increase. In fact, vertical integration is gaining momentum to further control success.
What does all this mean to the supply chain? There will be continued disruptions and supply chains will be on the move. Supplier diversification will continue to be of paramount importance. Manufacturing locations will be evaluated. Energy will remain a key driver, and the availability of natural resources and security will rise in importance. Smart companies will automate and digitize to enhance visibility, reduce costs and support flexibility. However, with supply chains on the move, disruptions will not dissipate. Volatility will be the new normal. Only the proactive that invest wisely, simplify, innovate and stay nimble will thrive. In fact, with the transformation of the talent landscape with the retirement of the largest population in history, these proactive companies will have the opportunity to dominate their industries.
Lisa Anderson is the founder and president of LMA Consulting Group, Inc., a consulting firm that specializes in manufacturing strategy and end-to-end supply chain transformation that maximizes the customer experience and enables profitable, scalable, dramatic business growth. She recently released “SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth”, an e-book on how to better navigate supply chain chaos and ensure profitable, scalable business growth. A complimentary download can be found at
www.lma-consultinggroup.com/siop-book/.
