ROBERTO SCHMIDT / AFP
- President Donald Trump made a temporary trade deal with China, reducing tariffs to 30% for 90 days.
- Supply chain experts told BI the deal is progress, but it won't reverse the tariff turmoil just yet.
- The US economy is still stuck in the "bullwhip effect," so prices and supply will remain in flux.
A temporary pause on sky-high tariffs between China and the US isn't really giving consumers much of a break from trade war chaos.
Five supply chain experts told Business Insider that, even with the recent reduction in Chinese tariffs, they expect to see continued disruption in the supply chain at least through the end of the year.
And, they said, the higher prices consumers are seeing on everything from fast fashion to electronics are probably only going to increase.
"While tariffs can be enacted with a pen stroke, it takes years to rewire global supply chains," John Lash, group vice president of product strategy at connected supply chain platform e2open, told Business Insider. "How this all plays out will be a complex formula full of surprises, with the general theme of higher consumer prices."
President Donald Trump has said that his trade strategy, while it may cause "short-term" pain for American consumers, will lead to more balanced trade relationships with our global partners, reducing or eliminating persistent trade deficits, and strengthening the US manufacturing industry.
Here's what supply chain experts said about what to expect in the meantime.
The 'bullwhip effect'
The bullwhip effect is a supply chain term used to describe how small disruptions create larger ripples throughout the chain of consumers, manufacturers, distributors, wholesalers, and retailers. It causes inefficiencies, inventory fluctuations, and price instability.
It's most often caused by unusual variations in demand, usually stemming from poor forecasting or bulk ordering — both of which the sector is dealing with now.
"We are in the bullwhip effect, but this would be what I call a policy-induced bullwhip effect," Nick Vyas, the founding director of the University of Southern California Marshall's Randall R. Kendrick Global Supply Chain Institute, told BI.
Businesses prepared for Trump's tariffs ahead of his inauguration by frontloading their shipping and stockpiling inventory. Then, when Trump's aggressive tariff strategy was announced in early April, they started holding shipments back to avoid paying higher fees. Ocean freight bookings to US ports from China decreased dramatically, restocking slowed, and jobs were cut across the shipping sector, Business Insider and other outlets have previously reported.
Now, Vyas said, we're in a "90-day refuel" where businesses will try to bring in as much stock as they can before the holiday season — and before the trade tensions have the chance to heat up again at the end of the temporary pause. But don't expect the supply chain snarls to clear up right away.
"I think this fluctuation, this back-and-forth cycle, the bullwhip is going to last us for at least the foreseeable future," Vyas said.
Continued shipping disruptions
Following a period of slowed-down activity at the ports, companies are now going to try to bring in as much inventory as they can over the next 90 days "because they don't know what'll happen" once the pause runs out, Chris Tang, a University of California, Los Angeles professor and expert in global supply chain management, told BI.
"So the port was empty, but now all of a sudden there's a big surge coming," Tang said.
That rush creates a new set of issues that will lead to increased prices, Bob Ferrari, a supply chain executive and managing director of the Ferrari Consulting and Research Group, told BI.
"Now, if this turns out to be as it has in the past, when all this activity comes in at once, then the container shipping lines scramble to handle all that volume in that short period of time," Ferrari said. That makes container shipping rates go up, raising the overall cost of transporting goods, he said.
Under the 145% tariffs, supply chain experts warned that Americans would see higher prices, empty shelves, and shortages within weeks. And while the lowered tariffs will reduce the extent of those impacts, the new tariffs and increased transportation costs will still lead to higher-than-normal prices, Ferrari said.
"You're going to see maybe double-digit price increases," he said.
Already increasing prices
Walmart, the biggest retailer in the US, has already started preparing its clients for continued price hikes. CEO Doug McMillon said in a Thursday earnings call that, though the temporary tariffs deal with China is a great start, it's not enough to keep prices down.
"Even at the reduced levels, the higher tariffs will result in higher prices," he said, adding that there needs to be a longer-term agreement between the two countries that lowers the tariffs even further.
Lisa Anderson, a supply chain expert and president of LMA Consulting, told BI she expects the overall effect of the tariffs to be "mildly inflationary," with some of the worst economic effects tempered by the recent trade deal, but ultimately "each industry or company could have a wildly different outcome."
But, she said, "over time, I'd expect for prices to stabilize after a near-term bubble." That's because "as companies move supply chains to the US, Mexico, India, Latin America, and other countries, they will offset the impacts of tariffs and be able to bring down prices," she said.
As for what kinds of goods this will affect, John Lash said discretionary products will see price hikes faster than staple items.
"And some goods we are used to buying may no longer be available," he added.
More trade turmoil on the horizon
Since they were first announced on April 2, Trump's sweeping tariffs — including a 10% baseline tariff and significantly higher tariffs on certain countries — have roiled the markets, wreaked havoc on the supply chain, and worried global leaders.
Trump's moves to increase the tariff on China to 145%, pause many country-specific tariffs for 90 days, and exempt certain electronic products from tariffs left business leaders concerned about continued uncertainty in the market.
Now, even after the first major trade talks between the dueling superpowers over the weekend, in which the US and China agreed to significantly lower their tariffs on each other, the uncertainty has persisted, since the US-China deal has another 90-day deadline.
As more tense negotiations creep across the horizon, Tang told BI that companies across the supply chain, which had already suffered a lot of damage following Trump's "Liberation Day" tariffs announcement, are still scrambling to catch up.
And it'll continue to be difficult for businesses to prepare for the future when they have no idea what Trump's next move will be.
"A complete trade deal is very difficult to pinpoint because, right now, I think the announcement is only a blanket statement — they still have to break down the details," Tang said.
"It's very important for the US government and work it out with China to have a really stable agreement — one way or the other, either high or low, just stick to it — so at least businesses know what they're working with," he said. "They don't need to be lovely-dovey to each other; you can cooperate and compete at the same time, but that's what's most important."