Let the Global Trade Wars Begin

When we look back on our current epoch and play board games (and their online variants) fifty years from now, chances are that cries of "I sunk your battleship" will be replaced with "I sunk your economy" or "I sunk your currency". And that's because a new era of economic warfare appears to be on the horizon. A couple of weeks back The Washington Post ran a scary yet insightful article suggesting that the US is leading the charge in erecting protectionist barriers as part of the new stimulus package. As an example, the authors site the case of a town in Peru, Indiana that recently "stunned its Canadian supplier by rejecting sewage pumps made near Toronto." But they did not just reject them -- they literally dug them up. The story goes on to note that "after a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, California, they were hauled out of the ground and replaced with American versions."

But Canada is not sitting still. "A number of Ontario towns, with a collective population of nearly 500,000 retaliated with measures effectively barring U.S. companies from their municipal contracts," the article notes. I suspect these are only the first shots in a skirmish that could lead to an all out trade war in the coming years. Short-sited, populist US policy that mandates states, municipalities and companies to "buy American" will do nothing but hurt US companies in the end at the expense of protecting a handful of jobs in the near-term. The long-term consequences of protectionist barriers -- whether they're in the form of mandates, tariffs or other taxes/restrictions -- will do nothing but prolong the downturn we're in. As a proactive measure, procurement and supply chain organizations should prepare themselves to source more domestically and guide down export forecasts and volumes as other countries follow suit in mandating domestic sourcing.

Jason Busch

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