Trade Wars Between China and US Prolong Delivery Times and Disrupt Supply Chains

Goldman Sachs mentioned in a 2021 article that the semiconductor shortage, which began in 2020 and is ongoing, has affected 169 industries, far expanding electronics and automobile industries. The deficit has affected steel production, concrete manufacturing, air conditioning, breweries, and even soap production.

Sachs’ analysis mentions: “Some computer chips have no available substitute, and if output of every product that uses chips were to decline proportionately, the drag on 2021 GDP would be around 1%,”. Although the prediction may seem alarming, the analysis believes the actual effect on GDP will be less severe. Anticipation is for a decrease of only 0.5% as businesses that can utilize alternative chips adapt to their requirements.

But what happens if the shortage expands? After the semiconductor crisis, there’s A new threat looming over the semiconductor industry, and it’s a big one.

Tariffs and export control increase costs and delays

The US gave the first shot in October 2022, as mentioned by Reuters, by prohibiting the export of advanced chips and devices used to produce these chips for China. The European Union has complied with the demand, while the United States continued to expand the embargo to other chips and services.

The tariffs imposed by the United States and China on each other’s goods have increased the cost of shipping and importing products. This is because the tariffs essentially tax imported goods from China. In addition to the higher shipping cost, the tariffs have also led to delays in the delivery of goods. Tariffs have made it more difficult for companies to get their goods through customs. The customs process has become more complex and time-consuming, which has led to delays.

For example, a company that imports goods from China may have to wait several weeks for its goods to be cleared through customs. This can lead to delays in delivering goods to customers and stop manufacturing and industries in day-to-day use of these parts.

Recent China’s export controls on gallium and germanium effects are just starting to get noticed in the industry, as gallium and germanium prices are up 18% and 4%, accordingly, as per the report from Nikkei Asia. Prices will continue to surge if a suitable solution isn’t found.

Rerouting supply chains to avoid trade wars challenges

Some companies have rerouted their supply chains away from China to avoid the tariffs, which has also led to delays as new logistics networks are set up.

For example, Apple has started moving some of its production out of China to avoid tariffs. Alternative countries could be India, Taiwan, and Vietnam. They would likely lead to longer delivery times for Apple products as the new factories set up shop.

Other companies have moved their supply chains to countries like Vietnam, Thailand, India and Malaysia, further leading to delays, as they had to set up new production lines and logistics networks in these countries.

For example, a company that moves its production from China to Vietnam may have to wait several months for its new production lines to be up and running. This can lead to delays in the delivery of goods to customers. Also, as Vietnam has a communist regime, it may be America’s next target, and as a developing country, setting up a robust production line won’t be easy.

Shortages of goods - the chip crisis

As mentioned earlier, The chip crisis, or semiconductor shortage, isn’t new. It has been around since 2020, caused by increased demand for PCs that created supply chain disruptions due to COVID-19 and geopolitical tensions and conflict – i.e., The Russo-Ukrainian War. It has affected various industries such as automotive, consumer electronics, and telecommunications leading to delays, rising prices, and supply chain disruptions and uncertainties worldwide.

As it seems a China-US trade war isn’t helping ease the fear and frustration, and, for now, it only seems to widen the gap and shortage.

According to S&P Global Mobility, the global production of light-vehicles faced a significant setback in 2021 due to the shortage of essential semiconductors. The estimate reveals that over 9.5 million units were lost, with the third quarter being the most brutal, resulting in a loss of approximately 3.5 million units.

Reuters reports that in 2022, Sony also had to make cutbacks and lower its full-year PS5 sales forecast from 14.8 million units to 11.5 million due to the semiconductor crisis.

The shortages of goods have led to higher prices for consumers. Companies must pass on the higher production costs or seek alternative solutions to consumers.

Conclusion and solution

The trade wars are ongoing, and there is the potential for further disruption to delivery times and supply chains. This is because the two countries could impose additional tariffs or other trade restrictions.

For example, the United States could impose tariffs on more Chinese goods. This would likely lead to further delays in the delivery of goods from China.

Trade wars and export controls are likely to continue to have an impact on the supply chain for the foreseeable future. Businesses and consumers need to be aware of these challenges and plan accordingly, as trade wars create uncertainty for distributors and manufacturers, making it difficult for businesses to make design and manufacturing decisions.

We at IKIDO have also contributed a solution for the semiconductor crisis; our BoM optimization platform allows for easily managing risk management by offering available alternatives. For example, let’s say a component in your design or build needs gallium, which now has a price increase or shortage; with IKIDO, you can look for alternative components with the same FFF suitable for engineering needs. To find out more, click here.