Kinaxis: Navigating Supply Chain Ripple Effects of Tariffs
Global supply chains have been disrupted once again after the US announced a 25% tariff on imports from Canada and Mexico – albeit with a 30-day negotiation reprieve – alongside an additional 10% tariff on Chinese imports.
These developments have sent shockwaves through various industries, with automotive, high tech and retail sectors experiencing stock declines as markets anticipate increased costs and significant supply chain disruptions.
Tariffs and their immediate impact
A recent blog post from Kinaxis notes that, when tariffs are imposed, their effects ripple throughout supply networks with far-reaching consequences.
According to a 2019 Congressional Budget Office (CBO) report published during the Biden administration's tariff implementation, one immediate outcome is slower economic growth driven by declining demand.
"Tariffs raise prices for consumers, dampening purchasing power and force companies to absorb or pass on increased costs," states the Kinaxis blog post, highlighting the immediate financial strain placed on both businesses and end consumers.
This is not without precedent. During the 2018 tariff hikes, the US imposed duties on steel and aluminium imports, driving up production costs across industries such as automotive and construction. Companies scrambled to find alternative suppliers or renegotiate contracts, but these rapid changes often introduced new inefficiencies and delays.
The semiconductor shortage that followed in 2020 further emphasised these vulnerabilities, as the blog explains: "Earlier tariff-related pressures had already strained global supplier networks, making it difficult for manufacturers to respond when chip demand surged. With duties imposed on key components and limited alternative sources, industries such as automotive and consumer electronics experienced production bottlenecks and inventory shortages."
When tariff effects stabilise
Though the immediate impact of tariffs can be severe, these disruptions do not persist indefinitely.
As Kinaxis points out, the CBO's December 2024 report estimated that "the price effects of a 10% uniform tariff with a 50% additional tariff on Chinese imports would stabilise within two years, much like those imposed in 2018, which saw normalisation by 2020."
The stabilisation occurs naturally as supply chains adapt to new market realities. Organisations recalibrate their operations by shifting sourcing strategies, diversifying supplier bases and exploring nearshoring or reshoring options.
In the wake of earlier tariffs, many manufacturers relocated production facilities closer to demand centres to minimise cross-border duty exposure, whilst others invested in technology to optimise forecasting capabilities.
Key challenges for planners
Kinaxis highlights that supply chain professionals face a trio of critical challenges when navigating environments that are tariff-imposed:
- Price volatility: Fluctuating material and goods costs strain budgets and reduce profitability.
- Supplier risk: Shifting to untested or higher-cost suppliers introduces new uncertainties.
- Logistics complexity: Tariffs alter trade routes and shipping patterns, leading to delays and increased costs.
However, amid these challenges lie opportunities for organisations to innovate and strengthen their operational resilience. The blog outlines some approaches to managing tariff-related disruptions effectively:
- Leverage predictive analytics: Advanced AI tools can model the impact of tariffs on costs, inventory and lead times. Kinaxis says: "We've seen this in action: as tariff discussions ramped up following President Trump's inauguration, the use of scenario modelling in our Maestro platform nearly doubled, mirroring the surge we observed at the start of the pandemic."
- Diversify supplier networks: Supply chain orchestration platforms can evaluate supplier performance and risk profiles, enabling organisations to strategically build relationships across multiple regions and minimise tariff exposure.
- Prioritise real-time visibility: End-to-end visibility ensures businesses can monitor demand, inventory and logistics in real time, facilitating rapid adaptation to new tariff environments.
Apple's response to the 2018 tariffs serves as an instructive case study. The Kinaxis blog details: "When faced with higher manufacturing costs in China due to tariffs, Apple took significant steps to diversify its supply chain. By expanding production to countries like Vietnam and India, it reduced its dependency on a single manufacturing hub while mitigating tariff-related financial impacts.
"The company also renegotiated contracts with key suppliers, ensuring operational efficiency despite shifting trade conditions."
The role of technology in adaptation
Advanced supply chain orchestration platforms, such as Kinaxis, have become essential tools for navigating tariff challenges.
By integrating real-time visibility with predictive analytics capabilities, these platforms enable companies to model scenarios, evaluate alternatives and implement changes rapidly and effectively.
As the global trade war continues to escalate, the message from Kinaxis remains consistent: be proactive rather than reactive.
The blog concludes: "While tariffs can disrupt supply chains, they also create opportunities for innovation and improvement. Technology investments (especially in AI tools that can analyse complex information quickly), supplier diversification and agile planning processes all contribute to building resilience in the face of uncertainty. Predictability may be out the window, but success doesn't have to be."
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