How The Global Supply Chain Is At Risk In The Burgeoning Trade War

There has never been anything like it: a coordinated, cooperative system of production that brings resources and factories together to create the products that fill our local markets and stores. We call it simply, the Supply Chain.

Apple Computer is the model of this new and innovative business model. From its headquarters in Cupertino, California, comes the initial design, and later the marketing of each of its products; everything else is a coordinated effort of global sourcing and production. Raw materials and components are sourced from around the world and then assembled by a Taiwanese company, Foxconn, in the world's largest factory, situated in China.

All this makes for a very long answer to the question: where are iPhones made? It has also made Apple stock one of the most valuable in the world, creating untold riches for Apple shareholders.

While Apple has been a leader in the Supply Chain revolution, it's far from the only company to adopt this global business model. In fact, it's closer to reality to say that nearly every primary US industry now sources at least a portion of its production from overseas. Take that thoroughly American industry, Auto Production, it too has become a globally cooperative effort. Automobile components are sourced from around the world, electronic components from Asia, brake and drive train parts from Europe, and batteries from China. Even some final auto assembly takes place in Mexico and Canada.

You're hard-pressed to find any sector of the economy that is not globally sourced, part of the worldwide supply chain. As you are aware, the food industry is one of the most global of all. Bananas from South America are nothing new, nor are avocados, which may come from California or the southern United States. Meats come from Brazil or Argentina, and fish from Norway or Japan. The list goes on and on.

So pervasive is our international production that one wag once noted that walking down the toy aisle in Walmart was like strolling through Beijing, with almost all the toys made in China.

Imagine the effort to bring this kind of production to the American marketplace. Products must meet American standards of safety and suitability. Countries that speak a different language and have a distinct culture must work to manufacture products that meet the requirements of the American market. Then ship those products across vast oceans to arrive in American store shelves at just the right time. Toys, in particular, are mainly sold during the year-end holidays, so overseas manufacturers must adhere to American schedules and standards.

All of this production, manufacturing, and logistics was invisible to the average American consumer. Generally, we didn't know how the products we purchased ended up in our local store; they just did. Until 2020, we were happy to buy the items we did, often at a price that we could not receive locally. We would find bargains anytime we went to Walmart, Kmart, Target, or other big-box stores that relied on offshore production.

However, all that changed in 2020 when the COVID-19 Pandemic shut down our international Supply Chain. China, in particular, stopped shipping products across the Pacific. It was also suffering from the effects of the Pandemic, and ceased production. Other countries we relied upon for their goods and services also halted production.

In the United States, the economic and health consequences were catastrophic – many workers were sent home to work remotely, small stores and non-essential businesses were ordered to close, and many manufacturers could no longer source the components and raw materials needed for production.

In just 90 days, 1.5 million American workers lost their jobs. The US Economy went into free-fall, with the GDP measure (Gross Domestic Product) plummeting by nearly 30%, the most significant single decline in history, exceeding any single quarter during the Great Depression of the 1930s.

Washington took notice. It was during the first term of President Donald Trump, and from his vantage point on the Potomac, it must have been clear that unless he took action, the American economy would fall into an abyss from which it would take years to recover. His response was to rev up the monetary printing presses, sending "stimulus checks" to all sectors. Businesses and industries received the largest proportion of the aid, while local governments, schools, hospitals, and other nonprofits also received direct assistance.

At last, ordinary taxpayers got a check in the mail or a deposit to their checking account. Under President Trump, taxpayers received up to three checks, the first for $1,200 per adult, plus a $500 stipend for every child under 17 years old. This first round was followed by a second check for $600 per eligible individual. Later, under President Biden, the Government sent a final stimulus check of $1,400 to each eligible individual and child in March 2021.

This massive fiscal stimulus was unlike anything the US Federal Government had ever done before—a real over-the-top response to the financial crisis caused by COVID. Unfortunately, the stimulus was not without some adverse side effects. For instance, it set the country on the road toward the massive government debt (currently about $37 billion) that the nation faces today. Additionally, this "free money" helped trigger a round of inflation that had not occurred in 40 years – the Consumer Price Index peaked at nearly 8% annual inflation in 2022, the year following the stimulus.

CONCLUSION

It's no exaggeration to say that the American economy is built upon the International Supply Chain. After all, we designed and built the relationships, logistics, and production necessary to provide the goods and services we demand. The reality is that the American way of life and prosperity rely on overseas production.

No one knows this better than the man who was US President during the most severe interruption in the Supply Chain during the COVID019 Crisis, Donald Trump. It makes his recent tactic in the burgeoning trade war with China all the more curious. Last Friday, October 10, President Trump wrote on Truth Social that on November 1, he will impose an additional 100% tariff on all Chinese goods – effectively shutting down the Chinese American Supply Chain.

...starting November 1, 2025 (or sooner, depending on any further actions or changes taken by China), the United States of America will impose a Tariff of 100% on China, over and above any Tariff that they are currently paying.

https://truthsocial.com/@realDonaldTrump/posts/115351840469973590

It's a remarkable position for the American President, literally putting all the cards on the table, in the hope that President Xi Jinping of China will back down. It's a bet that few in the business community would make – the risk-reward equation is too great. Trump is risking America's future economic prosperity against China's ability to withstand the loss of its best customer.

We will know, in less than three weeks, who will win this wager.


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