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President Biden’s Targeted Exclusion Process

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President Biden’s Targeted Exclusion Process

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The United States Trade Representative (USTR) is considering reinstating previously granted and extended exclusions on a case-by-case basis. Similar to the previous exclusion process, USTR has three considerations:

1. Whether the particular product remains available only from China

2. Whether reinstating the exclusion, or not reinstating the exclusion, will impact or result in severe economic harm to the commenter or other U.S. interests, including the impact on small businesses, employment, manufacturing output, and critical supply chains in the United States

3. The overall impact of the exclusions on the goal of obtaining the elimination of China’s acts, policies and practices covered in the Section 301 investigation.

In accordance with a USTR statement made on October 5, 2021, companies may submit comments either in support or opposition of the restatement of a particular exclusion. A list of the over 500 exclusions covered by the notice is posted separately on the USTR website here. The reinstated exclusions will be retroactive to October 12, 2021. The commenting period opens on October 12, 2021 and closes December 1, 2021.


Biden Administration’s New Approach to the U.S.-China Trade Relationship

The reopening of the Section 301 tariff exclusion process is the first action in the Biden Administration’s New Approach to the U.S.-China Trade Relationship. Ambassador Katherine Tai, the USTR, outlined the Biden Administration’s New Approach in remarks at the Center for Strategic and International Studies (CSIS) on October 4, 2021. Ambassador Tai identified four items as the starting point of this new approach:

-Enforcement of the Phase One Agreement;

-A new targeted Section 301 tariff exclusion process;

-Addressing concerns with China’s state-centered and non-market trade practices; and

-Working with allies to shape the rules for fair trade in the 21st century.

Following up on the second item, USTR issued its request for comments on the reinstatement of certain Section 3011 exclusions on October 5, 2021. Baker Donelson’s trade professionals expect additional actions as a result of the Biden Administration’s new approach to China and will continue to keep clients informed.

Background on the Section 301 Tariffs

In August 2017, the Trump Administration initiated a Section 301 investigation into China’s unfair policies and practices related to technology transfer, intellectual property, and innovation.2 In March 2018, USTR issued its Section 301 Report3 and determined that China’s actions related to intellectual property were unreasonable or discriminatory and burdened or restricted U.S. commerce. After unproductive engagement with China, USTR imposed tariffs on China’s imports as a response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property. USTR, however, established a process where companies could seek an exclusion from these tariffs and granted numerous exclusions for one year. USTR allowed companies to extend certain exclusions by written request. On December 31, 2020, all exclusions expired, except COVID pandemic-related exclusions.

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Lee Smith is an attorney and leader of Baker Donelson’s International Trade and National Security practice. He advises clients on matters involving export controls, customs compliance, trade remedy investigations, trade policy, market access, and free trade agreement interpretation. Smith can be reached at leesmith@bakerdonelson.com.

Robert J. Gardner is a public policy advisor in Baker Donelson’s Washington, D.C. office. He provides legislative and government relations guidance to clients on a variety of subjects, including tax, trade, appropriations, budget, infrastructure, and sanctions issues. Gardner may be reach at rgardner@bakerdonelson.com.

1 19 U.S.C. §§ 2411-2417; “Section 301” refers generally to Chapter 1 of Title III of the Trade Act of 1974.

2 Initiation of Section 301 Investigation; Hearing; and Request for Public Comments: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 82 Fed. Reg. 40, 213 (Aug. 24, 2017).

3 USTR, Findings Of The Investigation Into China’s Acts, Policies, And Practices Related To Technology Transfer, Intellectual Property, And Innovation Under Section 301 Of The Trade Act Of 1974 (Mar. 22, 2018) (Section 301 IP Report).

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U.S. Adds Chinese Entities to BIS Entity List and Updates Xinjiang Supply Chain Business Advisory

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Earlier this month, the US Government updated its ongoing response to what the Department of Commerce (“Commerce”) described as “Beijing’s campaign of repression, mass detention, and high-technology surveillance against Uyghurs, Kazakhs, and members of other Muslim minority groups in the Xinjiang Uyghur Autonomous Regions of China (“XUAR”), where the [People’s Republic of China] continues to commit genocide and crimes against humanity.”

Commerce’s Bureau of Industry and Security (“BIS”) added twenty-four (24) China-based entities to the Entity List on July 12th, thereby prohibiting the export, re-export, or in-country transfer of commodities, software, and technology subject to the Export Administration Regulations (“EAR”) to those entities without a license. Then, on July 13th, a group of agencies including Commerce, the Office of the U.S. Trade Representative (“USTR”), and the Departments of Homeland Security, Labor, State, and Treasury updated its Xinjiang Supply Chain Business Advisory (the “Advisory”) to highlight the increasing legal and reputational risks to companies who maintain supply chains with links to Xinjiang.

BIS specifically linked fourteen (14) of the twenty-four (24) total China-based entity designations to their connection to the ongoing repression of Muslim minority groups in Xinjiang. In addition to companies within China, foreign affiliates of Suzhou Keda Technology Co., Ltd. in the Netherlands, Pakistan, Singapore, South Korea, and Turkey, as well as the foreign affiliate of China Academy of Electronics and Information Technology in the United Kingdom, were also targeted.

These worldwide additions confirm the importance of screening both customers and supply chain participants wherever they are located. The July 12 BIS Entity List additions also included thirteen (13)  Entity List designations of companies and persons located in China and Russia as a result of their use of items for military programs or transfer to sanctioned Office of Foreign Assets Control (“OFAC”) Specially Designated Nationals (“SDNs”). BIS also added one (1) Russian company to the Military End User (“MEU”) list, which restricts the export or reexports of certain items to companies meeting the definition of an MEU.

Besides direct services to prison camps and authorities in Xinjiang, the inter-agency Advisory highlights activities that carry a heightened risk of a nexus to the intrusive surveillance system implemented by China in Xinjiang, which include:

-Venture capital investment in Chinese companies contributing to surveillance in Xinjiang;

-Selling items such as cameras, tracking technology, and biometric devices into China;

-Certain research joint ventures and research partnerships in surveillance-related areas with Chinese firms;

-Exporting, reexporting, or transferring (in-country) EAR-regulated items to companies on the Entity List;

-Trading in the securities of certain Chinese firms listed on the Non-Specially Designated Nationals Chinese Military-Industrial Complex Companies List (“NS-CMIC List”).

The Advisory puts the industry on notice that rigorous due diligence is necessary to mitigate risks in the areas of anti-money laundering (“AML”), potential surveillance assistance, forced labor use by customers or supply chain participants, and the provision of construction materials to Xinjiang authorities, and that the US government will use all agencies, laws, and federal contract clauses available to it to hold companies accountable. The European Union also released its own “Guidance on Due Diligence for EU Businesses to Address the Risk of Forced Labour in Their Operations and Supply Chains” on July 12th.

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Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

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Archives, Global Logistics, Global Trade Daily, Trucking, Warehousing

What Does it Take to Build a “Fit” Supply Chain?

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Is your supply chain strong and fit, or fragile and weak? A new report from Gartner helps you determine the answer and work toward a stronger, more resilient future.

Is your supply chain fit, fragile, or somewhere in the middle of the spectrum? This is a question that more organizations are asking themselves right now as they balance high levels of demand with constraints like supply chain shortages, port congestion, a dearth of ocean containers, and a short supply of qualified truck drivers.

Much like an amateur or professional athlete focuses on maintaining a certain level of fitness to be able to compete effectively, a company’s supply chain deserves the same level of attention (if not more). In a new report, Gartner explores the correlation between a fit supply chain and a resilient one, knowing that both elements are critical in today’s uncertain business environment.

Fit For Purpose

According to Gartner, the term “fit for purpose” describes an approach where planning leaders focus on what they should be doing, instead of benchmarking what others are doing—but that may not necessarily work for their own organizations.

Supply chain planning leaders that define their function’s fit for purpose and choose a corresponding organization design will improve their results and be better aligned to the overall business, Gartner says.

“Many supply chain planning leaders ask themselves if they should organize their function in a more centralized or decentralized way,” said Gartner’s Ken Chadwick, in a press release. “To answer that question, they must first understand what their individual fit for purpose organization looks like.”

To design a fit for purpose planning organization, Gartner says supply chain leaders must consider their companies’ business and operating model as well as the operational mindset. They must also understand the business and operating model of the overall company – customer base, products, serviced markets – and determine to what extent those factors are changing.

“Some companies are now moving from global to more regionalized supply networks because global networks are less resilient when it comes to disruptions, such as trade wars or the COVID-19 pandemic,” Chadwick said. “On the other hand, there are companies that want to try a more centralized approach to better serve their key customers.”

Gaining Competitive Advantages During Disruption

Fit supply chains can move ahead of the competition after dealing with the high-impact events, while fragile supply chains fall behind. According to Material Handling & Logistics, the most fragile supply chain operators focus on short-term survival, while the fittest supply chain organizations see disruptions as inflection points to improve the value that the supply chain provides to the business.

“Disruption is not a short-term situation, but a long-term trend that will most likely accelerate as we face climate change impacts, global power balance shifts, and more,” Gartner’s Simon Bailey told MH&L.

“In the future, disruptions will occur more frequently and supply chains must be able to deal with whatever is coming next,” he continued. “Some supply chain leaders have understood that already and prepared their organization accordingly.”

Step by Step Approach

Creating a stronger, more resilient supply chain requires a focus on what’s important to the company, both in terms of operations and decision making. Some companies’ mindsets focus on business unit accountability, for instance, so they align planning to a commercial leader who owns those outcomes.

Other companies are driving an end-to end mindset, leading to one integrated planning organization serving enterprise outcomes, with mindsets related to cost-focus, customer experience, innovation, agility, resilience, and risk also significantly impacting how planning leaders organize.

“When planning, leaders know about their organization’s present and future operating model and mindset,” Chadwick added, “they can in turn think about what their own function should look like to best fit in and serve its purpose.”

When creating fit supply chains, companies can choose among decentralized, center-led, or centralized models. Using the organization’s overall operating model and mindset as a guide, Gartner says supply chain planning leaders can evaluate if a decentralized, center-led, or centralized model is the best design for their function. Here’s what each of these looks like and how it operates:

-In a decentralized model, all planning roles report into the separate business unit leaders. This approach makes sense for large portfolio companies with mostly independent business units.

-The center-led model leaves planning operations within the business units but creates roles at a global level that focus on planning processes and long-term planning.

-Finally, in the centralized model, all elements of supply chain planning report into an integrated planning leader who is running all aspects of planning across the different regions.

Remember that different companies will take different paths to “fitness,” and that these variations are expected and perfectly normal. “There really is no one-size-fits-all solution for a planning organization, nor is a decentralized model necessarily a sign of lesser maturity,” Chadwick concluded. “Planning leaders must evaluate their individual situation and future plans and design their function accordingly.”

Generix Group North America provides a series of solutions within our Supply Chain Hub product suite to create efficiencies across an entire supply chain. From Warehouse Management Systems (WMS), Transportation Management Systems (TMS) to Manufacturing Execution Systems (MES), such platforms can deliver a wide range of benefits that ultimately flow to the warehouse operator’s bottom line. Our solutions are in use around the world and our experience is second-to-none. We invite you to contact us to learn more.

This article originally appeared on GenerixGroup.com. Republished with permission.

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Archives, Global Logistics, Global Trade Daily, International Trade

Supply Chains & The ESG Imperative: The Buck Stops with the C-Suite

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Nike and Chipotle tied executive compensation to sustainability goal achievement. Mary Barra of GM allocated $27B to the development of electric and self-driving vehicles through 2025. Citi recently added circular economy and sustainable agriculture focus areas for its $250 billion Environmental Finance Goal, which it expanded from the original $100 billion goal that it met four years early. Environmental, Social, and Corporate Governance (ESG) is a top concern for today’s businesses and it’s not going away.

This said, there are plenty of businesses still grappling with the challenge. Whether it’s unethical child labor practices in China creating business concerns for H&M or environmental recklessness in the Amazon region creating problems for McDonald’s, Walmart, and Costco, these days the C-Suite is working hard to gain real visibility into risks lurking deep in the supply chain that could cause serious negative repercussions back at HQ.

Let’s call it the new ESG imperative. The movement towards embracing ESG responsibility as a core corporate value has been some time coming. 2000 saw the launch of the Global Reporting Initiative, which redefined corporate governance to include sustainability measures. Today, these standards have been adopted by more than 80% of the world’s biggest corporations.

Sustainable Investing & Regulations Drive Adoption

ESG has risen to even greater prominence today as a form of sustainable investing, whereby investment into new ventures is evaluated through a more holistic lens that looks at the environmental sustainability and societal impact of the funded project and not merely at its projected raw financial performance.

To be sure, there is a growing sense that ESG-funneled investments will perform better than most, as the global community begins to place increased priority on ethical behavior, fair labor practices, combatting human rights abuses, diversity, inclusion, and climate change. In 2018, a survey on climate and sustainability services found that just 32% of investors conduct a structured review of ESG performance. By 2020, that number had jumped to 72%. The pandemic has added fuel to this argument, where sustainable equity funds withstood early pandemic market dips, better than non-sustainable counterparts.

Let’s be clear. There are laws and regulations that will force us to take responsibility for certain aspects of our supply chain. Here in the United States, for instance, the Securities & Exchange Commission (SEC) is promulgating an effective ESG disclosure system – one that would require publicly traded companies to elucidate their broader ESG exposures in their extended supply chain, as part of their annual 10K filings, beyond some existing mandatory disclosure requirements in the area of board membership diversity.

The SEC’s John Coates, Acting Director of Corporate Finance, said on March 11, 2021: “The SEC is well equipped to lead and facilitate a discussion on when and how ESG risks and data must be disclosed, and how to create and maintain an effective ESG-disclosure system that would promote the disclosure of decision-useful, reliable and, where appropriate, globally comparable ESG information.”

“There remains substantial debate over the precise contents and details of what ESG disclosures might or should encompass. Part of the difficulty is in the fact that ESG is at the same time very broad, touching every company in some manner, but also quite specific in that the ESG issues companies face can vary significantly based on their industry, geographic location and other factors,” Coates added.

This isn’t mere posturing. Last Friday the SEC put out a risk alert, citing instances of misleading claims, inadequate internal controls, and weak policies found in an examination of investment advisors, companies, and funds.

Flipping the Script

Clearly, this is only the beginning of what is to come from a government mandate perspective. Even without strong compliance drivers, there are ample, solid business reasons for executives to move proactively to 1) understand/visualize their ESG profile in their extended supply chain and 2) optimize how they position their ecosystems to be operationally resilient and to yield top performance by being “ESG-forward.” It’s short-sighted to see this in defensive or even cynical terms, or to think that real hard-nosed business execs don’t really take ESG seriously. But implementing that desire can be difficult. As I recently told the Financial Times, said businesses want help identifying their exposure but struggle with the many tiers of suppliers on which they depend.

What if we can flip the script? Go beyond what is merely the minimum (the basic “compliant” level) and actually find and reward positive behavior. The power of transparency means the right thing to do is a massive business opportunity. This goes beyond the investment world; this goes straight to the core of the corporate world and the myriad extended supply chains of finance, manufacturing, energy, aerospace and defense, pharma, automotive and beyond.

Done right, we can encourage the creation of a better, healthier, safer global economy. We help rebuild trust in the global supply chain. We can reveal and reward the good, as well as see the bad and put a higher cost of doing business in pursuing those out-of-fashion ways of operating.

Likely Changes for the Future

To be sure, there have been a number of self-correcting moves along these lines of late. The large solar-power industry here in the U.S., repped by the Solar Energy Industries Association, resolved to eschew solar-panel product components from a region of China reportedly involved in unethical child labor. The SEIA has been urging its members to move supply out of the Xinjiang autonomous region following reports of forced labor among the local Uighur ethnic-minority population.

Relatedly, numerous international companies involved in sourcing components from the same region – making a range of products from footwear to consumer electronics – are reevaluating their sourcing from Xinjiang in western China as reports surface of forced labor in factories located in this remote region.

In sum, when speaking of resilience in supply chains, more and more companies are realizing that we all have a shared responsibility to upholding our values, protecting the environment and finding a visible seat at the table for ethics. More and more boardrooms, rightly so, are focused on exposure to ESG risk, if you will, of a business. It’s a matter of improving your top and bottom line and of securing your brand’s global reputation.

The following hypothetical scenarios, where improved visibility into your extended supply chain and a will to change into an ESG-forward posture is the new normal, could prompt businesses to:

-Not source lumber from native forests that are not being replenished… in the case of a worldwide home-goods producer

-Refrain from using products tested on certain species… a CPG giant focused on personal care products

-Eliminate the use of child labor at cobalt mines in Congo… a global electric-car/hybrid automaker

-Ensure diversity in your supplier base to increase innovation and economic impact in various socioeconomic demographics

The rising prominence of ESG reflects the moral imperative that faces us as business leaders to hold ourselves accountable for the future of our planet and future generations.

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Jennifer Bisceglie is the founder & CEO of Interos

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Archives, Global Trade Daily, International Trade

BIDEN DREW A STARK CONTRAST FROM TRUMP ON THE CAMPAIGN TRAIL, BUT WILL HIS TRADE POLICIES BE ALL THAT DIFFERENT?

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As we all saw throughout the 2020 elections, Americans and those around the world anxiously awaited the results while international and domestic trade players planned for anticipated policy and regulatory changes to come in the short and long terms. For now, some things are here to stay. Flexibility is a must for maintaining the current trends within the international trade atmosphere. Trade relations with China and Vietnam as well as new tariffs on the horizon remain critical questions. 

The next four years will undoubtedly require careful strategic planning with an emphasis on digital innovation for trade policy experts as COVID-19 continues to add an additional layer of complexity to operations while adjusting to a new administration and policy changes. 

To help you navigate the future, Global Trade talked with Washington, D.C.-based law firm Miller & Chevalier’s international trade experts Richard Mojica and Dana Watts. They weigh in on the 2020 election outcome, how international and domestic trade lane shifts can be anticipated and what traders can do to prepare now for the near future. 

“President Biden will likely continue a trade policy of protectionism,” Mojica says. “Biden’s approach would be more subtle than Trump’s, but his trade policy agenda is centered around the familiar themes of taking a hard line on China and boosting U.S. industries by increasing government purchases of U.S.-based goods and services. Further, although Biden would certainly seek to restore trade relations with long-time allies, he has signaled that his administration would focus on domestic investments before pursuing any new trade agreements. That probably includes not pursuing Phase II of the U.S.-China Agreement, in part due to growing animosity between the countries.

“On the topic of tariffs, Biden has not yet pledged to remove the tariff regime he inherited from Trump and is not likely to do so without getting something in return that would satisfy his base supporters,” Mojica adds. “Biden has also vowed to use other tools to keep China at bay, which may include economic sanctions, the tightening of export controls, anti-dumping investigations, restrictions to foreign investment and investigations into human rights abuses.”

The question on the minds of global traders is what can be done now to prepare for what’s to come and how proactive measures can solidify operations for the future. Supply chains experienced new levels of disruption throughout 2020, requiring changes in established production locations and tapping into new market opportunities for outsourcing. However, these moves do not come without a cost in some form, and right now, the right move is hard to determine beyond what has already been implemented. 

It’s important to note that prior to Donald Trump’s departure from the White House, the U.S.-China deal still remained a key issue for many American manufacturers. With Biden now officially sworn in, relations with China are a constant question. 

“For the last 2-3 years, many companies with supply chains involving China have moved all or some production out of China and into Vietnam, Malaysia and elsewhere in Asia,” Watts explains. “U.S. companies are also considering moving production to Mexico because of its proximity to the United States and the potential cost-savings associated with the U.S.-Mexico-Canada Agreement (USMCA) implemented on July 1.” 

President Biden’s “Made in America” plan–a $400 billion, four-year increase in government purchasing of U.S.-based goods and services–will further incentivize companies to take a closer look at sourcing from the U.S., where there is capacity. “Still, we continue to hear from companies that China’s supply chain ecosystem is unrivaled, so they are experiencing growing pains as they ramp up production in other countries,” Mojica notes.

Having previously served as a U.S. Customs Headquarters attorney, Mojica predicts that under the Biden administration, tariff compliance enforcement from U.S. customs will most likely continue and even become more significant. Not only does this increase the chance for penalties and investigations but also the enforcement of USCMA and importer auditing protocols. Starting from the inside out, USMCA mirrors NAFTA while adding drastic changes to specific sectors, where operating procedures are not a “one-size-fits-all” approach. For many companies, USMCA requires a careful comparison and evaluation from compliance to anticipated penalties. 

“Companies that seek to benefit from cost savings under the USMCA must have a compliance infrastructure in place to verify that its products qualify for preferential treatment under the agreement, Mojica says. “Based on our experience working with multinational companies, developing adequate internal controls requires an effort that may involve stakeholders in various departments, including procurement, finance, supply chain and legal. U.S. Customs afforded companies through the end of 2020 to get up to speed, but that grace period has since expired and will be followed by USMCA audits.”

The Phase One trade deal is an additional key topic that companies are grappling with. Which strategic planning efforts will support business and whether there will be additional conflict between the already strained relationship with China are in question. Future agreements are at a standstill as Phase One requirements have yet to be fulfilled on China’s end and show no progress. 

The question is: Now that Biden is the 46th U.S. President, what will the Phase One Deal look like? 

“Biden has criticized the Phase One deal for not addressing Chinese subsidies and support for state-owned enterprises, cybertheft, and other unfair practices,” Watts points out. 

Mojica and Watts both expect an uptick in investigations into forced labor in the supply chains of companies that import merchandise into the United States.

“The U.S. government has taken a keen interest in human rights abuses around the world, and it is charging companies to ensure that there is no forced labor in their supply chains,” Mojica says. “In response to the rise in U.S. Customs-led investigations and enforcement cases concerning imports made with forced labor, companies are taking steps to enhance their supplier due diligence efforts.”

Short-term resolutions are bleak, and the inevitable shift in policy adds more of a strain on companies aiming to determine what preparations are within their control. Specific strategies can support forward-thinking approaches in the interim, but without concrete provisions, the future does not look favorable for peaceful international relations but rather growing tensions, which are already being felt. 

The future of policies in place and the possibilities for policy implementation have yet to be fully felt under the Biden administration. The future of trade could be completely different from what companies are currently navigating on a domestic and international scale in the coming weeks and months. Nevertheless, companies would do themselves a favor by extending strategic approaches and ensuring compliance while anticipating another year of change.

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Richard Mojica is a member of Washington, D.C.-based law firm Miller & Chevalier, where he counsels U.S. and international companies on how to minimize the cost of importing merchandise into the United States through strategic customs planning and duty-savings programs.

Dana Watts is counsel of Miller & Chevalier’s International Practice, focusing on customs law. She advises clients with all aspects of import compliance.

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The American Printed Circuit Assembly Market Affected by Trade Wars but Resilient to the Pandemic

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IndexBox has just published a new report: ‘U.S. Printed Circuit Assembly (Electronic Assembly) Market. Analysis And Forecast to 2025’. Here is a summary of the report’s key findings.

After two years of growth, the U.S. printed circuit assembly market decreased by -16.4% to $35.1B in 2019. The market value increased at an average annual rate of +2.9% over the period from 2013 to 2019; however, the trend pattern indicated some noticeable fluctuations being recorded throughout the analyzed period. Over the period under review, the market hit record highs at $41.9B in 2018, and then contracted markedly in the following year. This rapid decrease was caused b a plunge in printed circuit imports from China.

In terms of supplying countries, South Korea ($4.1B), Taiwan ($4.1B) and China ($3.4B) were the main suppliers of printed circuit assembly to the U.S., together accounting for 67% of total imports (IndexBox estimates). Imports from Taiwan recorded tangible growth in 2019, while supplies from China dropped dramatically in the last year. This went along a new round of trade confrontation between the U.S. and China when the U.S. tries to limit the influence of Chinese technology companies on the American market.

Printed circuit assembly production, meanwhile, amounted to $18.3B in 2019. The total output value increased at an average annual rate of +1.4% from 2013 to 2019. Despite the pandemic, preliminary data show that in the first half, cumulative revenues of electronic component manufacturers did not decline from the previous year. This could indicate that the printed circuit assemblies and microelectronics market, in general, will be more resilient to a pandemic than many other markets.

Printed circuit assemblies constitute integrated electronic systems containing various semiconductors and other elements mounted on printed circuit boards. Such systems are widely used in the production of electronic, computer, digital, video, audio and other types of apparatus, in the aerospace, industrial automation, telecommunications and many other areas.

Therefore, the key factor determining the development of the printed circuit assembly market is the dynamics of industrial manufacturing, which, in turn, depends on economic growth, employment and income of the population, and investments, which altogether reflect the overall GDP growth. In addition, the growth of the market is also shaped by the growing digitalization of the economy, the development of smart technology and the Internet of Things, as well as the rapid development of mobile communication networks and the expansion of their coverage.

According to the World Bank outlook from January 2020, the U.S. economy was expected to slow down to +1.7% per year in the medium term, hampered by increasing global uncertainty, the U.S.-China trade war, and slower global growth.

In early 2020, however, the global economy entered a period of the crisis caused by the COVID-19 epidemic, due to which most countries in the world put on halt production and transport activity. The result will be a drop in GDP relative to previous years and an unprecedented decline in oil prices.

The U.S. is struggling with a drastic short-term recession, with the expected contraction of GDP of approx. -6.1% in 2020, as the hit of the pandemic was harder than expected, and unemployment soared due to the shutdown and social isolation. The combination of tight financial conditions and uncertainty regarding the length of the pandemic and the possible bottom of the related economic drop, as well as high volatility of financial markets, disrupt capital investments in the immediate term, which may put a drag on the expansion of the printed circuit assembly market.

An additional serious risk for the medium-term recovery is the growth of geopolitical tensions in the world, especially between the United States and China, which are being drawn into a political confrontation on a wide range of issues. If sanctions and restrictions are tightened, it will hit global trade and worsen economic growth both in the United States and China and in many other countries involved in supply chains.

In addition to the development of electronics and the Internet of Things, the pandemic has triggered a surge in demand for mobile audio and video services, which will continue in the medium term. In addition, in the coming years, the active proliferation of 5G networks is expected to continue, which will give a new powerful impetus to the use of the Internet and the further development of smart devices. All of this will drive demand for printed circuit assemblies as they are key components of electronic engineering.

Taking into account the above, it is expected that in the medium term, as the economy recovers from the effects of the pandemic, the market is expected to grow gradually. Overall, market performance is forecast to expand with an anticipated CAGR of +0.9% for the period from 2019 to 2030, which is projected to bring the market volume to 374M units (or $38B) by the end of 2030.

Companies Mentioned in the Report

Sanmina Corporation, Jabil Circuit, Xilinx, Flextronics International USA, Electronic Assembly Corporation, Mercury Systems, Ttm Technologies, Benchmark Electronics, Jabil Circuit, IEC Electronics Corp., Sypris Solutions, Flextronics America, Plexus Corp., M C Test Service, Express Manufacturing, American Technical Ceramics Corp, Sigmatron International, Magna Electronics, Park Electrochemical Corp., Creation Technologies Wisconsin, Diamond Multimedia Systems, Viasystems Technologies Corp, Mid-South Industries, Hadco Corporation, Kimball Electronics, Smtc Manufacturing Corporation of California, Flextronics Holding USA, Logic Pd, Viasystems

Source: IndexBox AI Platform

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How Companies can Rethink Supply Chains to Deal with Disruptions

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The coronavirus has disrupted U.S. companies in many ways, and nearly three-fourths of them have seen their supply chain significantly affected.

While China has begun slowly reopening as the number of coronavirus cases there decreased in recent weeks, reports of the illness shot up in other countries, and the epicenter of the pandemic shifted to Europe and then the U.S. Thus, multiple supply chains have been compromised as the outbreak spreads, and there’s no telling when those links in the various chains will operate at normal capacity.

“There are waves of effects coming even if Chinese manufacturing gets back to full-go,” says Hitendra Chaturvedi, a professor at the Supply Chain Department of W.P. Carey School of Business at Arizona State University and an expert on global supply chain sustainability and strategy.“As the coronavirus has spread globally, drops in different trading partners’ ability to supply is felt everywhere.

“What this is showing, especially in the U.S., is we need to reassess supply chain strategy and make it stronger to withstand unforeseen, major disruptions.” Chaturvedi outlines some possible outcomes in U.S. supply chain strategy as a result of the coronavirus:

Learning that cost is not the only consideration. Chaturvedi says that when companies in the future plan their overall global supply chain strategy, they may decide that paying more to establish a more resilient and flexible process would be worth it by reducing risk. “Companies typically find the lowest-cost supplier, but if you have a single source, you’re vulnerable, and that’s what’s happening now,” Chaturvedi says. “This will move companies more toward mitigating risk. That requires making investments. They could stabilize their supply chains by enlisting alternative suppliers, boosting inventories or investing in more diverse ways of distribution.”

Localizing more manufacturing and transporting. “Dependence on China for their manufacturing has put small and midsize businesses in jeopardy,” Chaturvedi says. “The pandemic exposes the vulnerability of companies that rely heavily on a limited number of trading partners. What will result is businesses will look to restructure their global supply chains, and some companies will look at localizing more than they would have in the past. A shift in that direction had already started during the U.S.-China tariff fight.”

Planning for future disruptions. Another result of the pandemic’s impact on supply chains is it will compel companies to anticipate disruptions in the future and build in quick responses to their supply chain. This involves a process called mapping, in which companies engage suppliers in order to better understand their sites and processes. “It’s imperative for businesses running a global supply chain to be in the know about news that could cause disruptions,” Chaturvedi says. “You have to be proactive and not reactive. Knowing where the disruption will come from and how that will impact their products allows companies to lead time and the ability to create a mitigation strategy.”

Utilizing technology. Chaturvedi expects to see a rise in the use of AI, chatbots, the internet of things, and robotic process automation to facilitate supply chains. “This will be done not only as a pretext to bring manufacturing jobs back from China,” Chaturvedi says, “but also for purely selfish reasons because bots do not get sick.”

“The impact of the coronavirus pandemic on supply chains has given new meaning to the word ‘disruption,” Chaturvedi says. “We’ve never seen anything quite like this, and businesses can learn a lot from it that will help their supply chain process in the future.”

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Hitendra Chaturvedi  (www.wpcarey.asu.edu/people/profile/3541031) spent over 30 years in progressive technology leadership positions with Microsoft, Newgistics, E&Y e-Business and A.T. Kearney. Chaturvedi also built a $100 million software company in India, GreenDust, where he implemented proprietary reverse logistics software at Amazon, Flipkart (Walmart), Samsung, Panasonic and Whirlpool. A computer engineer with a master’s degree from Louisiana State University and an MBA from Southern Methodist University, Chaturvedi has been widely covered in the media and is a subject matter expert on global supply chain strategy, sustainability in supply chain, reverse logistics, ecommerce, artificial intelligence and machine learning. Now a professor at Arizona State University, Chaturvedi has been a visiting professor at Southern Methodist University, University of Texas-Dallas, Penn State and Purdue.

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Archives, Global Trade Daily, International Trade

Global Trade: 2019 Wrap-Up and 2020 Forecast

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Looking back at this year, 2019 saw a multitude of global economic growth disruptors from the escalation of the trade war between the U.S. and China, to Germany’s manufacturing and automotive decline and Brexit.

Consequentially, global trade growth has almost come to a standstill, and while it’s not quite at recession levels, nearly every market and sector, as well as businesses within those sectors, have felt the impact of policies and decision making.

Even with the possibility that trade growth could rebound in 2020 to a modest 1.5%, economic policy uncertainty remains high and if it abates, it is likely only to do so to a limited extent into 2020. What factors are at play? Let’s take a look.

Trade war with China. Despite the recent conclusion of ‘phase one’ of a U.S.-China trade deal, uncertainty remains high. The underlying reason for the trade war is not resolved and is unlikely to be resolved soon either: it regards fundamental issues such as the influence of China on the global economy and theft of intellectual property. Although tensions may temporarily soften, as they seem to do now, we see no end in sight for the trade war with China and with the current administration in the White House for one more year, another rocky year is forecasted. The trade war alone is affecting no more than almost 3% of global trade — currently approximately $550 billion of goods — but it is sending a ripple effect around the globe from business investment to value chains and trade flows. If it expands to other economies in Asia and Europe, which is very possible, we could see an even more pronounced slowing in trade.

Brexit. The self-imposed economic hardship has caused much uncertainty and plummeting fixed investments in the business sector. With Boris Johnson elected to Prime Minister in the December election and Brexit a certainty come January 31, policy uncertainty has been lessened, but some will remain until a new trade relationship with the EU is shaped. While the clout of those favoring a no-deal Brexit has been diminished, a no-deal Brexit is still possible. If this occurs, it would throw chaos into supply chains across Europe.

Business insolvencies and market pressure. The U.S. is expected to lead the number of business insolvencies with a 3.9% increase in 2020, far above the global average of 2.6% expected next year. This is due to the fact that there’s been lower business investment, lower external demand (especially from China), and higher import and labor costs. Those sectors feeling the most pressure include steel, which is dealing with an overcapacity issue, automotive, and businesses dealing in aircraft, which have seen a 20% market share loss. U.S. businesses dealing in vegetable and animal products and agriculture won’t see any relief soon either, and all U.S. businesses that have typically relied on imports from China (as well as businesses in China relying on imports from the U.S.) are now facing higher costs, which are resulting in insolvencies.

Despite all the economic doom and gloom, there are a few bright spots. Indeed, the ‘phase one’ agreement between the U.S. and China provides at least hope. Moreover, the U.S. signed trade agreements with Japan, Canada, and Mexico, and a few countries, like India and China, which are pulling their weight with a 6% GDP growth rate, are providing some positive impact on the global figure as they continue to grow at rapid pace, that is to say above 5% per annum.

Further, the consumer outlook looks positive with household consumption in both North America and Europe ending on a high note, thanks to low unemployment. Unfortunately, this alone cannot support economic growth. Low-interest rates and the amount of money floating around the U.S. as well as Europe could give rise to turmoil in the markets and the economy – both pillars of global growth – and any detriment to consumer confidence could put the economy in a downward spiral, reversing the modest growth expectations set for 2020.

There is much at stake and a low likelihood of that changing for 2020. If economic and political developments continue to sour, economic growth could be hampered even more than it already is.

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John Lorié is Chief Economist at Atradius Credit Insurance, having joined the company in April 2011. He is also affiliated to the University of Amsterdam as a researcher. Previously, he was Senior Vice President at ABN AMRO, where he worked for more than 20 years in a variety of roles. He started his career in the Dutch Ministry of Foreign Affairs. John holds a PHD in international economics, masters’ degrees in economics (honours) and tax economics as well as a bachelor’s degree in marketing.

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3pls, Archives, Global Trade Daily

Competitors Link Arms and Embrace Technology’s Promise

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Overcapacity. Low freight rates. Security problems. Data inadequacies. Stringent environmental regulations. When it comes to moving containerized freight around the globe, third-party logistics companies (3PLs) have a lot to deal with.

However, like a guardian angel, blockchain has arrived to solve all these issues and more for the 3PL industry, which stands to save billions of dollars annually through increased efficiency, improved processes and a digital transformation.

Blockchain technology, while still in its innovative infancy, has “a lot of potential” to facilitate trade, according to a report by Christine McDaniel, a senior research fellow at George Mason University’s Mercatus Center, Hanna C. Norberg, the founder of Trade Economista and the university that was released in May.

In “Can Blockchain Technology Facilitate International Trade?” McDaniel and Norberg explored blockchain technology’s usefulness in easing trade finance, improving customs procedures and tracking the provenance of goods. Their conclusion: “Adaptability, interoperability, and a policy environment that welcomes experimentation will be essential if the U.S. economy is to realize the potential benefits of blockchain technology across the international trade landscape.”

They also point out that numerous private- and public-sector efforts are underway to explore the benefits of blockchain technology. Financial institutions are experimenting with blockchain to increase access and decrease trade-finance costs.

The shipping industry is working with those along the supply chain and with customs officials to see how a distributed digital ledger can facilitate the transparent movement of goods across borders and seas. Companies and retailers are exploring ways to track their own supply chains so they can communicate tracking and origin information to consumers who increasingly demand such information.

Among those that are all-in with blockchain is Blockshipping, a Danish concern that was launched in May 2018 with a goal of developing the world’s first freight container registry. The startup claims its blockchain-based Global Shared Container Platform, which provides a real-time registry of 27 million containers, could save the industry $5.7 billion annually. For that to work, parties across the industry must apply sensors to all containers.

The same month that Blockshipping announced its arrival, global shipping giants CMA CGM and the Mediterranean Shipping Co. joined TradeLens, the blockchain-based digital shipping platform developed three years ago by A.P. Moller-Maersk and IBM. TradeLens is an open and neutral blockchain platform that promotes an efficient, transparent and secure exchange of information to improve collaboration between different stakeholders within the supply chain.

Ironically, CMA CGM and Hapag-Lloyd had criticized the workings of TradeLens in 2018, stating that for a blockchain-based platform to succeed within the industry, it would need to have a common standard. With CMA CGM and MSC now having joined TradeLens, the platform accounts for shipping data of over half the number of container lines that sail across international waters.

Surgere is a North Canton, Ohio-based digital supply chain and packaging specialist whose clients include Nissan and CEVA Logistics. In June, Surgere announced it had joined the Blockchain in Transport Alliance (Bita), a Chattanooga, Tennessee-based organization with nearly 500 members in more than 25 countries that collectively generate more than $1 trillion annually. The alliance helps develop industry standards, encourage the use of new solutions and educate its members who are mostly drawn from the freight, transportation and logistics sectors.

“Blockchain enables instant visibility of inventory transactions, captured by Surgere’s extremely accurate RFID solutions, which can be immediately and collectively processed throughout the supply chain,” said Rusty Coleman, Surgere’s vice-president of Digital Transformation, in the Bita announcement. “That visibility can remove artificially created demand patterns and make visible smooth and continuous demand for tier [suppliers] near real-time.”

Representatives from NBSF Railway, Daimler, Delta, J.B. Hunt, FedEx, Transplace and UPS are on the Bita board of directors, whose Standards Council chairman is Dale Chrystie, FedEx’s business strategist and blockchain fellow. “This is not a process improvement initiative; this is a breakthrough discussion,” Chrystie said from the stage of the Blockchain Revolution Global conference in Toronto on April 25. “This is a different way to think about how global clearance looks in the future.”

The notion that competitors are joining hands when it comes to the promise of blockchain was demonstrated by the fact that the FedEx executive was joined by Eugene Laney, head of international government affairs for DHL USA and Mahesh Sahasranaman, principal architect at UPS Supply Chain Solutions, in a discussion with Don Tapscott, executive chairman of the Blockchain Research Institute. Each agreed there is a common interest in embracing uniform standards for blockchain and getting governments on board with the technology.

“This is an issue that must be looked at with a global viewpoint,” Chrystie said. “These dots are going to connect. The question is how are you going to accelerate that process.”

Here is a deeper dive into ways blockchain can revolutionize the industry, according to the “Can Blockchain Technology Facilitate International Trade?” report from George Mason University’s Mercatus Center.

Trade and Finance

Blockchain could reduce the expense and time required to facilitate trade that depends on third-party lending or insurance. Such trade accounts for about 80 percent of global trade. This reduction of expense and time will be especially important for small and medium-sized enterprises that may face restrictions to accessing credit or for firms in countries with less developed finance markets.

Customs Procedures

The technology could reduce costs associated with obtaining import and export licenses, creating and verifying the accuracy of cargo and shipping documents, and making customs declarations. Blockchain could make a positive contribution to expediting customs procedures. The total impact of those procedures on global trade volumes and economic output is estimated to be greater than that of tariffs.

Tracking the Origin of Goods

Blockchain could improve how producers and retailers manage their supply chains by providing real-time information on the movement and origin of goods. Blockchain designed for trade should disallow anonymity. If such a design were to be widely adopted, it might improve detection of illicit trade flows and help deter illegitimate efforts to circumvent trade rules. A design without anonymity could aid customs and law enforcement while easing the flow of legitimate trade.

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Archives, Global Trade Daily, International Trade, Stories

Automation Won’t Destroy Trade – It Might Even Boost It

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Alarm bells are ringing

Many industry observers are sounding alarms about the looming impact of automation, robots and 3D printing, which they fear will destroy jobs, disrupt value chains and maybe even reduce the need for international trade. Developing countries are particularly concerned because trade has been an avenue to economic development and growth for them. But a recent report released by the World Bank shows that the data and evidence don’t support the hype. Instead, automation, robots and 3D printing might actually increase trade as trade costs continue to fall.

Some business analysts have warned that automation and robots could disrupt and shorten global supply chains. The thinking behind the concern is that, if a computer can design it and a 3D printer can make it, then we won’t need to source it from countries abroad that have more abundant low-cost labor than we do. Instead, companies will drastically shorten their value chains, which could reduce international trade.

The anxieties have gotten the attention of development economists and developing countries. Trade and economic growth go hand-in-hand, both in economic theory and in practice. Multiple studies have shown that firms in developing countries that participate in global value chains outperform their local peers that solely focus on domestic markets. If robots eliminate the need for global value chains, this important avenue for economic development could be threatened.

Anxiety over automation may be overblown

Scare tactics about economic change are attractive because they get our attention. About 15 years ago, we saw headlines about “white collar outsourcing” (once attorneys were added to the list of jobs that could be moved offshore, the panic even spread into boardrooms). Some lawmakers called for restrictions on offshoring, and some of those calls are still alive today. But the mass exodus of white collar jobs did not occur.

The World Bank is a multilateral development agency that makes grants and loans to support capital projects and economic growth in the poorest countries. Anything that reduces the need for trade and global value chains would hit those developing countries hard, putting the automation concerns squarely on the World Bank’s radar.

In its annual World Development Report, the latest released on October 8, the World Bank does not take a definitive stance on the overall effects of automation, and it does not make any bold predictions. But it does make one thing clear: The anxiety over automation hindering trade is not supported by the data and evidence. In fact, the authors show that sectors with the largest increases in automation have also been those with the largest increases in trade. Yep, that’s right: We’re experiencing the opposite phenomenon to what so many are worried about.

Automation actually helping to expand trade

Specifically, the report shows that the percentage change in imports of parts from developing countries from 1995 to 2015 is higher in industries that are more automated. Agriculture and textiles are among the least-automated industries and have the smallest change. Metal, rubber and plastics, and automotive sectors have the highest rates of automation and the largest increases in trade.

Automation in industrial countries has boosted imports from developing countries

Why? Because automation, like robotic assembly and 3D printing, leads to an expansion in output and demand for material inputs. Automation can also lead to the creation of new tasks. So while it brings labor market adjustment pains — like technology and progress always do — automation will not necessarily reduce trade or shorten global value chains.

Meanwhile, investments in digital technologies continue to lower the costs of coordinating across long distances. These lower trade costs are expected to promote trade and lead to a continued expansion of global value chains, particularly for developing countries.

The big picture

Here’s the big picture: Change is the one thing in the economy you can count on. Improvements in how we make things and advanced production technologies are likely to continue, and workers and firms that adapt and embrace these changes are likely to outperform those that do not. But a wide-sweeping elimination of trade and global value chains due to automation and robots? Don’t believe the hype.

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The original version of this article was published in The Hill.

ChristineMcDaniel

Christine McDaniel a former senior economist with the White House Council of Economic Advisers and deputy assistant Treasury secretary for economic policy, is a senior research fellow with the Mercatus Center at George Mason University.

This article also appeared on TradeVistas.org. Republished with permission.