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Rajesh Kalidindi, CEO and founder of supply chain AI company LevaData, offers the following observations on USMCA and the economy.
How might COVID impact the advancement of the USMCA trade deal?
- Implementation will be delayed. US borders to both Canada and Mexico are highly restricted right now, automakers have essentially shut down, so neither the private sector or the government is interested in implementing a trade deal right now.
- Countries are focused on keeping their people safe, and companies are focused on staying in business. Although USMCA was highly relevant just a few weeks ago, it's very low on the list of international priorities now.
- Interesting / funny that in the Fall of 2018 there was serious concern that USMCA would be implemented in early 2019, and that tariffs would be levied in early 2020. Especially for the auto industry, there was concern that US companies wouldn't be able to restructure their supply chains within a 12-18 month period, and would be stuck with tariffs, which was expected to lead to higher prices for consumers. The auto industry stopped expressing concern about getting hit with tariffs a few months after the agreement stalled in the senate, and remain unconcerned.
Recession
- In the past week, we've gone from predicting a recession will hit the US within months, to acknowledging that it has already started. We agree with Bank of America's analysis.
- Even when Chinese manufacturing is up and running, there will be a lag in product availability, which means higher prices for goods. Higher prices plus high unemployment makes an inflationary period practically inevitable.
Will China capacity return by April?
- Yes, it's quite possible that Chinese factories will be at or near full capacity in April. They seemed to have contained the virus and as a wealthy, communist country, they have much more control than other countries over the private sectors and their workers. If they can build a hospital in six days, they can staff factories over the next 4-6 weeks.
- However, there's no repairing the lag in supply chains that's taking place now. We've had a break in the chain, and that break is not recoverable. It only recovers over time and no matter what, companies have lost capacity and time.
- Companies that aren't able to meet demand for their products due to manufacturing or supply restrictions won't be able to get those sales back once China is up and running.
- When China gets to full capacity is one story, but whether the US and other countries will be prepared to import products is another story.