The falling tension within the trade standoff between the United States and China occurs as international supply chains waver on the edge of severe stress, suggested by new findings. Surveys by GEP’s Global Supply Chain Volatility Index indicates a considerable drop in manufacturing order placements, following a huge inventory buildup. Despite advancements in trade agreement negotiations, the rapidly evolving dynamics are still casting a shadow over the manufacturers’ prospective plans and hindering capital investment decisions as revealed by the gathered data.
The moment of reprieve in the Sino-American tariff dispute coincided with the repercussions of the tariffs introduced by President Donald Trump, which hit American and Asian manufacturing sectors quite significantly. This lead to a serious downturn in the level of buying activities by April, subsequent to an impulse to gather supplies, as depicted in the GEP Global Supply Chain Volatility Index.
“The halt in tariff imposition has proved to be a significant respite for manufacturing entities in America and China,” stated John Piatek, the Vice President of Consulting at GEP. “Our Supply Chain Volatility Index illustrates that China’s manufacturing demand is plummeting at a drastic rate and American manufacturers are strenuously accumulating essential resources to cushion against potential tariffs.”
Piatek opined, however, that the relief resulting from the trade agreement isn’t likely to instantaneously quell the unease of American manufacturers regarding risk mitigation strategies concerning China for an enduring period. “As companies strategize to mitigate risk and limit their ties with China, the high-speed transformation and ambiguity are obscuring their vision for the future, simultaneously affecting their capital investment and supply chain decisions,” he explained.
GEP’s Global Supply Chain Volatility Index monitors demand scenarios, shortages, logistics pricing, stock levels, and production delays, based on a periodic survey encompassing 27,000 businesses. Piatek mentioned, “The initial hits of the tariff conflict have been borne by global manufacturers.”
The data on fluctuating supply chain conditions ought to serve as a forewarning about the potential consequences in case the tentative halt on tariffs by the U.S. and China does not culminate into a perpetual agreement at the end of the 90-day freeze, reigniting the trade warfare.
The data illustrated a sharp increase in supply hoarding by North American firms in April, described by Piatek as “worrisome.” Concurrently, he stated, “Preliminary indicators of manufacturers predicting a contraction in demand and supply deficits have started surfacing.”
In Asian countries, purchasing activities engaged in by manufacturing companies marked the lowest point since December 2023. A silver lining in the reported downturn in manufacturing activities comes in the form of Europe, where an industrial downswing appears to be ending.
In terms of manufacturing frailty, the U.K., having become the first nation to finalize a preliminary trade agreement with the U.S., showed substantial weakness. Supplier activity had plummeted to an unprecedented low, akin to data records dating back two decades. Nonetheless, the managing capability of the supply chain in Germany and France, having been underutilized over the preceding year, is demonstrating growth.
Piatek, however, stressed that this upward trend in European manufacturing could take a downturn should global trade environments further deteriorate. There appears to be a surge in surplus capacity within the Asian supply chains as of April, and this rise seems to be led by the likes of China, Taiwan, and South Korea.
Stephen Edwards, the Port of Virginia’s Chief Executive Officer, in an interview published this week by CNBC, asserted that the U.S. port stands to gain from that growth, given a lesser reliance on China and increased connectivity to Southeast Asia, South Asia, and Europe in future supply chain scenarios. He said, “Over the last four years, our fastest growth has been seen from the Indian subcontinent, followed by Vietnam and lastly Europe.”
Trade relations with China have been constant for the past four years at the Port of Virginia. “This trade stands as our second-largest bloc after trading with the EU. So, it’s still a significant bloc,” he further elaborated. “But if there’s migration over time, whatever may be the new trade environment, there lies an opportunity.”
While the trade agreements are yet to be seen, Edwards expressed optimism that the scenario is likely to see a decrease in dependence on China and increased trade with regions like Southeast Asia and Europe. Concluding his stance, Edwards stated, “Considering the probable shift in the trade landscape, I reckon we’re positioned favorably.”