‘Tariffs could be a death knell for countless supply chain jobs and businesses’

For 25 years the world witnessed the greatest reductions in extreme poverty in human history. Starting in 1990, more than a billion people were liberated from its scourge.

This was borne out of reformed economic policy by countries such as China and India and the hard work of their populations. But it was catalysed by wealthy American and European consumers wanting things cheaper, and businesses providing it for them via low tariff access to those markets.

Mass reduction of poverty has been the greatest achievement of globalisation—even if it was inadvertent—and British retailers and brands have been part of this joyous trend. In real terms, many more people have been able to exercise their fundamental human rights on the back of their labour, from access to health, education, clean water and much more.

Since the late 2010s, Covid-19, conflict and climate change have halted the progress. But it is president Trump’s trade war that looks set to end this era for good. Trump’s agenda may be rooted in a desire for a ‘better deal’ and a desire to shift the make-up of the American economy. But for countries that have orientated their economies around export-related growth, and for workers whose livelihoods depend on it, the impact has the potential to be catastrophic.

While Trump has now paused his ‘trade war’ by setting most tariffs at 10%, with 90 days for countries to negotiate new deals, the uncertainty is already taking effect. Planned investments are on hold everywhere, new hiring stopped.

The impact will be felt for workers on farms, in general merchandise factories and many places beyond. But it’s easiest to see in garment production.

In a garment factory, labour typically makes up around a third of the total cost of goods, raw materials another third, and the rest in energy, transport and overheads. That means that even if ambitious efficiencies can be found, tariffs of the scale of those initially proposed for Bangladesh (37%), Cambodia (49%), Pakistan (30%), Sri Lanka (44%) and Vietnam (46%) cannot possibly be shouldered by suppliers alone.

Unless these countries can strike new deals with America promptly, despite having little to barter with and likely being back of the queue, they could mark a death knell for countless jobs and businesses tied to US production. Workers will be faced with a double-whammy. First with huge pressures on wages and working hours, as factories desperately try to do more with less. Then, jobs will just go.

“Even at 10%, Trump’s tariffs are an earthquake for the world trading system”

Responsible businesses, however, can make a difference. At the Ethical Trading Initiative we know that, just as in personal relationships when a friend is facing extreme challenges, responsible businesses talk to their partners and find out what they can do to bring more stability on their side.

What is the impact on your supplier and their factories? What are the impacts on workers? Can bringing forward orders help smooth out production schedules in the interim? Can making longer order commitments provide more predictability while other customers are affected?

But it’s also good business sense. Every factory owner I have spoken to since the Covid-19 pandemic knows exactly how each of their customers reacted at the time. They know those who stayed in close touch, agreed schedule changes, made commitments about future partnerships and kept to them.

They knew who was unreliable, pulled orders at short notice and left them in the lurch. And they know who unilaterally tried to negotiate, or demand reduced payment terms, even as the factories themselves were at risk of bankruptcy and the workforce at risk of unemployment. Those factory owners have remembered what happened and they know who they choose to support with extra capacity when needed, with their best production lines and their best prices.

Last week, before Trump’s announcement of a 90-day pause, some unscrupulous brands had already told their factories to do the impossible and cover the +30% tariffs. They will be remembered too.

Even at 10%, Trump’s tariffs are an earthquake for the world trading system, and we still don’t know what all the aftershocks will be.

But sensible businesses keep calm, value their partnerships, play to their strengths and wait until the dust clears before they make any major changes. And they help ensure that the hard-working people in their supply chain, who are part of their success, have the stability they need to be part of future success too.