Impact of the US Election on Procurement

As the 2024 US Presidential election season seems to take ever stranger turns, we wanted to look at what it may mean for procurement and supply chain. The outcome will impact not only the US, but also key trading partners.

This pivotal election year could reshape the supply chain landscape for years to come. Predicting actual effects is a risky business. Outcomes will depend on the overall economic climate, specific policies and platforms, and the inevitable gridlock due to political polarisation.

Of course, all the political manoeuvring and planning can be derailed by unexpected disruptions that happen so often they should be expected. What will be the COVID crisis or Ukraine conflict next year?

Resilience is Critical

Whoever the new president is, they will inherit some problematic situations that will require immediate attention. Given the election timing and unfolding global developments, chief procurement officers must deal with economic and market uncertainty.

Chief Procurement Officers and their teams head into 2024 with a continued lack of clarity and a need for caution. While a recession was avoided last year and inflation slowed in most regions, overall uncertainty clouds the economic forecast.

Ongoing geopolitical unrest and climate conditions are causing delays and increased costs in shipping markets. Many procurement teams seek alternative suppliers to mitigate those expenses.

There’s no clear end in sight for ongoing conflicts that disrupt the supply chain, including strife that closes off the Red Sea, and the Ukraine situation. Rates between China and Europe have skyrocketed due to necessary diversions around Africa, away from the Suez Canal. Asia-to-US lanes have been hit with higher rates as capacity has been rerouted to the European lanes to compensate for the much longer transit time.

The spectre of labour stoppages and congestion has led some companies to build up inventories, shifting peak season rates earlier than ever.

Trade Wars

Currently, tariffs on a number of goods from China will continue, with products sanctioned at higher rates than before. The Biden Administration reviewed tariffs imposed by the Trump Administration, so many of the tariffs will continue for at least four more years.

The tariffs are designed to incentivise US companies to purchase goods from sources other than China for components used in EVs and solar cells, as well as finished products from those inputs.

President Trump is particularly fond of tariffs, so if he returns to office, it wouldn’t be surprising to see additional levies on products from China.

The US could step up enforcement activities for existing measures, including a spotlight on goods made in China but diverted through other countries to avoid the tariffs. CPB may emphasise the de minimis rules, allowing only properly documented goods under $800 to enter the US daily without paying the tariff.

Trade relations are much better on the Atlantic side of the country. The Biden Administration suspended tariffs on certain imports from the European Union and replaced tariffs with tariff-rate quotas on steel and aluminium from the EU and UK. Measures against Japan, including steel and washing machine imports, were also suspended.

With ongoing tensions and the administration’s stated policy to drive up costs for goods from China, CPOs should lead a strategic reassessment of their supply chains to reduce exposure to this conflict. A revised supply chain built around a different supplier base could improve resiliency and sustainability. For example, global companies have moved to suppliers in other regions, such as Apple expanding its sourcing in India.

Procurement teams will have to align with finance and business partners to analyse the trade-offs between short-term switching costs and the long-term benefits of the transition.

Policy Potential

Both parties tend to agree on the need for infrastructure investment in highways, ports, and airports. Upgrades and maintenance can significantly improve efficiency and reduce operating costs.

Immigration policies may be the most contentious area for a new administration. Trump has vowed to reduce undocumented immigration and deport millions of people who have entered the country in the past four years. If the Democrats win, the flood of cross-border movements may continue, helping alleviate labour shortages in critical sectors like warehousing and distribution.

The future of ESG and DEI policies may also be at stake. A new Trump Administration would likely work to lessen or eliminate the influence of these programs. Some US companies and institutions have already dropped their support, closing DEI offices. The role of ESG could diminish as well, particularly as a performance indicator.

The future of NATO could also hang in the balance. Will the organisation continue to exist at all? If it does, what will the impact be on the US military and financial support to member countries and Ukraine? Changes here could have a seismic effect on the supply chain and should be considered while planning for 2024 and beyond.

The 2024 US election gives procurement leaders yet another reason to drive resilience throughout their extended supply chains to insulate the enterprise against unexpected shocks. Efforts will continue to optimise sources, cut costs, and reduce and mitigate risks.

Note: This article was written prior to President Biden exiting the Presidential race and being replaced as the Democratic Nominee.