It’s hard to believe Donald Trump has only been back in office since midway through January. Whether it’s additional tariffs on the import of materials like steel and aluminium or plans to target countries with ‘reciprocal tariffs’, the rate of change and potential impact on supply chains is almost too fast and far-reaching for any one person to keep pace with.
With fresh tariffs emerging from the US on an almost daily basis, it’s not possible for any business – especially those reliant on global trade – to predict every new announcement, or have a bespoke response plan ready for each possible scenario.
Instead, businesses with the potential to be hit by tariff whiplash must be able to respond swiftly to developments as they happen, or better still rehearse for potential changes ahead of time, many of which may be entirely unprecedented.
To do this, they need to have the technological tools that enable them to see beyond the horizon to identify plausible scenarios and their potential impacts at all levels of the supply chain, from the network to the individual warehouse shop floor before their rivals – thus turning seismic change into competitive advantage.
Ultimately, when a storm of unexpected tariffs or unprecedented disruption strikes, the businesses that can adapt flexibly and with speed will be best placed to ride it out.
Which industries are particularly vulnerable?
In the UK, many businesses are already feeling whiplash from a month of tariff changes under the new US administration. The US is Britain’s largest single export market, with more than £60bn worth of goods exported there in 2023 – 15.3% of the UK’s global total.
Industries heavily reliant on exports – most notably, machinery and transport – are those facing the most risk.
Take the machinery and transport sector, which is worth more than £200bn across the UK and the EU. Car manufacturers – particularly in Germany, Europe’s dominant manufacturing force and leading exporter to the US and Mexico – are already facing a substantial hit.
And if the ‘reciprocal tariffs’ mooted last week by the US President take effect, which would impose minimum tariffs across the board added to each nation’s VAT rate, the UK would be the fourth most impacted country.
Simply put, many businesses in the UK remain underprepared to deal with the impact of such a scenario. Too many still rely on outdated methods to assess the impact that limit agility, in a trading environment which only seems to be growing more volatile.
Barriers to supply chain agility
The reason that many supply chains remain vulnerable to sudden tariff changes or trade policies is because their approaches to operations tend to be reactive rather than proactive.
In recent times, Artificial Intelligence (AI) has significantly improved forecasting capabilities. But when used alone, it is not enough; AI fundamentally learns from past events, meaning it can overlook entirely plausible but unprecedented scenarios.
Indeed, one of the key barriers to true agility is an over-reliance on historical data to drive decision-making. For example, it is certainly useful context that in trade battles in Trump’s last term in office, the US targeted famous consumer goods including French wines and cheeses, Italian luxury goods and Scottish and Irish whiskies.
But reliance on this historical context alone fails to account for the new, more aggressive trade policy of a second Trump presidency, and the possibility of an economic policy with tariffs as its cornerstone targeting new industries. To achieve truly agile, flexible response capabilities, businesses must have access to insights which go beyond simple derivations of past events.
Another major challenge is the speed of response, especially with so much uncertainty around the future about when tariff changes will hit, or who will be impacted. On average, it takes two weeks for a business to react to supply chain disruption – delays that, over a decade, can erode nearly six months’ worth of profits. Without scenario modelling and strategic foresight, companies will remain on the back foot, forced into crisis-mode decision-making rather than pre-emptive adaptation.
A tariff-proof supply chain combines AI with simulation technology
To effectively anticipate and plan for tariff change in today’s volatile geopolitical context, businesses need to be capable of using AI tools in combination with simulation technology – intelligent simulation.
Doing so gets the best out of both technologies. With intelligent simulation, AI can model and prioritize countless ‘what if’ scenarios, providing supply chain and logistics teams with actionable insights before disruptions occur.
Whether it’s understanding the impact of potential tariff changes, identifying alternative suppliers, or assessing new market opportunities, AI in combination with simulation allows businesses to remain agile and act quickly before the unprecedented strikes.
Businesses that integrate AI in combination with simulation technology into their supply chain strategies will not only navigate tariff whiplash with greater ease but will also establish a competitive edge in global trade.
This is because combining simulations with AI allow companies to explore both the network and the individual warehouse or distribution center-level impact of complex, tailored counterfactuals about the future with which they can plan better than ever.
Ultimately, operations leaders need to understand the impact of a tariff change on a granular level as well as the network level. With this approach, they can overcome the limitations of sparse real-world information and generate new training data for AI technology so that it can deliver comprehensive, reliable forward-looking insights during periods of trade unpredictability.
With this level of insight, different tariff scenarios can be focused on and planned for and responses rehearsed accordingly – so that when the time comes in real life, they can respond with flexibility and agility.
The reality is that economic unpredictability is here to stay. The only question that remains is whether businesses will continue with a reactive approach – or choose a prepared, pre-emptive approach instead.
if operators are to take action, they need to understand the impact of a tariff change not just at the network level but down to the more granular level for individual warehouse for example
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