Advancing Resilience Amidst Trade Disruptions and Tariff Swings

Advancing Resilience Amidst Trade Disruptions and Tariff Swings

by Dr. Shereen Nassar, Global Director of Logistics Studies and Director of MSc Logistics and Supply Chain Management Suite at Heriot-Watt University Dubai

Supply chain resilience has become a crucial topic of discussion in our interconnected and globalised world. Over the past decade, global supply chains have faced numerous challenges, including natural disasters, geopolitical tensions, and the COVID-19 pandemic. Among the various challenges, trade disruptions and tariff fluctuations have emerged as prominent factors impacting the stability and efficiency of global supply networks.  These disruptions have highlighted the vulnerability of global supply chains, emphasising the need for resilience. According to research conducted by the Thomson Reuters Institute for their ‘Global 2022’, global trade professionals have identified disrupted supply chains, high tariffs, and sanctions as significant challenges.

The current state of global trade, which is the key to the world economy, has shifted and shown new patterns. It is subject to constant change in the global ecosystem In recent years, the share of total global trade by emerging economies including the BRIICS (Brazil, Russia, India, Indonesia, China, and South Africa) countries has continued to increase rapidly.

According to a World Economic Forum report in 2021, China accounted for 15 per cent of all global merchandise exports and 6.5 per cent of global service exports. It remained the largest world trader of goods for six successive years. Furthermore, Unfinished goods, components, and services account for 70 per cent of total trade and services constitute two-thirds of global GDP. In a study by McKinsey in 2021 it was shown that importing countries consistently depend on fewer nations for the supply of goods, that is the case across 40 per cent of all global trade and this is creating significant supply chain risks.

Trade disruptions, and tariff fluctuations pose significant challenges to the global economy and businesses worldwide. These disruptions can be triggered by various factors, including geopolitical tensions, changes in government policies, or unforeseen events like pandemics. They can disrupt supply chains, leading to production delays and increased costs for businesses. Companies heavily reliant on imported raw materials or components may find it challenging to secure a stable supply, impacting their ability to meet customer demand. Moreover, tariff fluctuations and non-tariff barriers create uncertainty in international trade. Frequent changes can make it difficult for businesses to plan their operations and pricing strategies. This uncertainty can deter foreign investments and hinder economic growth. Trade disruptions and tariff fluctuations can escalate trade wars between countries as well. These conflicts can result in retaliatory measures, further harming global trade relationships and economic stability. Small, and medium-sized enterprises (SMEs) are particularly vulnerable to these challenges. They often lack the resources and expertise to navigate complex trade regulations and absorb sudden cost increases.

One of the most valuable lessons from trade disruptions is the importance of diversifying sourcing locations. Relying heavily on a single supplier or region can leave a supply chain vulnerable to disruptions. To safeguard against such risks, companies must explore multiple sourcing options. This includes identifying alternative suppliers, both within their home country and abroad. Diversification allows a business to spread its risk and ensures that if one supplier or region experiences a disruption, production can continue with minimal interruption. Moreover, diversification can also enhance competitiveness, as it may lead to cost savings and improved access to various markets. The concept of designing supply chains with redundancy is another strategic requirement for businesses seeking resilience in the face of disruptions. Redundancy entails the presence of backup suppliers, alternative transportation routes, and sufficient inventory buffers within the supply chain network. This multifaceted approach serves as a safeguard, ensuring the continuity of supply chain operations when unforeseen disruptions inevitably arise. Having backup suppliers means that a company is not solely reliant on a single source, mitigating the risk associated with supplier failures, production hiccups, or external shocks. Similarly, alternative transportation routes provide flexibility in logistics, circumventing challenges such as port closures, strikes, or transportation bottlenecks. Additionally, maintaining inventory buffers safeguards against sudden demand spikes or supply shortages. Finally, supply chains need to be designed with agility in mind allowing companies to make changes as and when necessary with minimal disruption to output, processes and income.

The Global Trade Report 2022 also underscores the growing significance of global trade technology in helping companies navigate the complexities of a challenging regulatory landscape. However, it also reveals that many businesses are lagging in adopting these technologies, despite their potential benefits. One of the important initiatives of the World Economic Forum 2023 in Davos to make trade efficient, greener and more inclusive was a three-year pilot partnership between the Forum and the United Arab Emirates which will implement industry 4.0 technologies such as Blockchain and AI algorithms for more efficient shipments tracking and optimizing logistics operations. Leveraging technology empowers companies to enhance their supply chain efficiency, minimise costs, and improve customer satisfaction by ensuring that products are readily available even in the face of unforeseen challenges. Technology such as advanced forecasting and tracking systems can provide greater visibility and agility in supply chain operations. Real-time data and analytics can help companies respond swiftly to disruptions. Forecasting systems leverage historical data and predictive algorithms to anticipate demand patterns, enabling companies to plan production, inventory levels, and distribution more accurately.

Building resilience in global supply chains requires a holistic approach that incorporates lessons from past disruptions and anticipates future challenges. It involves a commitment to adaptability, a focus on transparency, and a willingness to invest in technology and human capital. Companies that proactively embrace these principles and develop a resilient supply chain strategy will be better positioned to navigate the uncertain terrain of global trade, ensuring their operations remain agile, efficient, and capable of withstanding whatever challenges lies ahead. Moreover, ongoing training and skill development are essential components of a resilient supply chain workforce. The forthcoming UN climate summit, COP28 hosted by the UAE in Dubai, will place a spotlight on the role of trade in goods and services and how trade policies can contribute to strengthening and expediting the transition towards clean energy and building resilience. Designated as ‘Trade Day’ during COP28, this event will emphasise trade’s potential to act as a driving force for climate-smart development, concentrating on topics such as the reduction of carbon emissions within value chains and enhancing resilience.. Resilience is not just a goal; it is a dynamic strategy that must evolve with the changing landscape of global commerce.

About this Author

Dr Shereen Nassar
Global Director of Logistics Studies and the Director of the MSc Logistics and Supply Chain Management programmes
Heriot-Watt University Dubai

Dr Nassar’s main research interest is sustainability and supply chain resilience. She has published a number of research papers and book chapters in areas such as automotive recall risk and social sustainable supply chain performance, sustainable maritime logistics, supply chain information security, contemporary disruptive business applications of blockchain technology, smart cities and implementation challenges.