Escalating US-China trade war: Major challenge for global supply chains and logistics industry

The tariff war between the US and China has pushed the global supply chain into a period of severe disruption, forcing logistics businesses to restructure their networks and operational strategies.

Escalating US-China trade war: A major challenge for global supply chains and logistics industry

US-China trade war: A major challenge for global supply chains and logistics industry (Photo: Phaata)

US-China trade war: Risk of widespread disruption for global supply chains

The latest developments in US-China trade tensions – with China raising retaliatory tariffs to 125% on some US imports, after the US imposed an effective tariff of 145% on goods from China – are marking a serious turning point for the global supply chain. While economists like Zhiwei Zhang of Pinpoint Asset Management argue that further tariff increases may be economically irrational, the current tariffs are already creating profound operational and strategic challenges for logistics and supply chain professionals around the world. From Phaata International Logistics Marketplace’s perspective, the focus is no longer on waiting for further tariff increases, but on addressing the significant disruptions that have already occurred and navigating through a period of prolonged uncertainty.

Operational Impact and Escalating Costs

The operational impact and escalating costs are becoming more apparent than ever, as punitive tariffs begin to exceed the normal tolerance levels of global supply chains. Specifically, three prominent issues are weighing on logistics and international trade operations as follows:

Breaking the threshold of commercial viability:

When tariffs exceed 100%, the entire calculation of imported costs (landed costs) is reversed. For many product groups on the tariff list, the current tariffs make direct trade between the US and China no longer commercially viable. The Chinese Ministry of Finance has clearly stated that: “There is no longer a market for U.S. goods imported into China” at the current tariffs – clearly reflecting the prohibitive cost impact.

Pressure on logistics networks:

While goods may continue to move in the short term (due to previous commitments or some exemptions), these punitive tariffs will inevitably lead to a sharp reduction in shipping volumes on affected routes. This disrupts the capacity planning of carriers (sea, air and road), the consolidation strategies of freight forwarders, and the use of warehouses.

Increased complexity and risk:

Customs clearance procedures are more stringent, the risk of delays is higher. Managing high-tax inventory increases storage costs and financial risks significantly. Such a volatile environment requires robust contingency plans and a highly flexible logistics system.

Restructuring Supply Chain Strategy

In the face of volatile trade and increasingly stringent tariff barriers, reshaping the supply chain is no longer an option but an urgent requirement. Businesses are forced to shift their strategies to adapt and enhance their competitiveness through three important pillars:

Accelerate supply diversification:

The current tariff environment forces businesses to accelerate their already-developed supply chain diversification strategies. Businesses dependent on the US-China trade corridor need to accelerate their supply chain mapping, identify and evaluate alternative locations (e.g., Southeast Asia, Mexico, Eastern Europe), and consider “near-shoring” or “friend-shoring” models.

Redesign the distribution network:

Businesses are forced to rethink their entire distribution network structure. Shifting inventory centers, changing transportation modes, or establishing new production facilities are all necessary steps to mitigate the impact of tariffs. The lack of clear prospects for negotiations, despite the openness of the Chinese Ministry of Commerce, highlights the need for long-term restructuring rather than temporary responses.

Strengthening resilience and transparency:

The current situation highlights the importance of resilience in the supply chain. Investing in end-to-end supply chain management platforms, predictive risk analytics, and supplier relationship management is essential to effectively respond to disruptions and make informed strategic adjustments.

Economic and sectoral impacts

The impacts of trade tensions extend beyond businesses and supply chains, to the entire economy and key industries. In the absence of signs of cooling, the following consequences are gradually shaping an uncertain “new normal”:

Pressure on the macro economy:

China’s GDP growth forecast was cut by Goldman Sachs partly due to trade tensions, showing the spillover effects at the macro level. Although direct exports to the US account for only a small portion of China’s GDP, the impact on the logistics-related workforce (estimated at 10-20 million workers tied to exports to the US) is huge, creating a ripple effect across the economy.

Pressure by sector:

Industries that rely heavily on the trans-Pacific trade route – especially for components or finished products – are facing severe margin pressure and operational complexity. Sectors such as automobiles, electronics, retail and some agricultural groups are most affected.

Uncertainty becomes the new normal:

The lack of a clear roadmap to de-escalate tensions, despite statements that tariffs have peaked, has led to prolonged uncertainty. This has hampered long-term investment decisions in logistics infrastructure and supply chain optimization, forcing businesses to maintain a defensive posture and avoid risks.

Conclusion

From a logistics and supply chain perspective, Phaata International Logistics Marketplace believes that the US-China trade relationship has entered a period of deep and potentially prolonged disruption due to extremely high tariffs. Trade flows have been severely damaged and need to be restructured immediately. Logistics professionals need to focus on reducing costs, addressing operational complexities, and re-architecting supply chains to be more diverse, sustainable, and resilient – in an era characterized by geopolitical conflicts and economic hardship. Statements from both sides suggest a stalemate, making proactive supply chain adaptation not only the wise choice, but also a vital condition for maintaining future competitiveness.

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