What are the new dynamics in distribution chains?

January 2025 by Mario Pires

New dynamics in distribution chains

The operations that ensure that a product reaches consumers efficiently are the links in the distribution chains and are interconnected in complex mechanisms. When everything works we don't even realize they exist, but countless events have highlighted their vulnerabilities.

Do you know where most of the Artificial Intelligence chips and batteries for electric vehicles come from? From Taiwan and China. Hundreds of products and components like these are manufactured far away from the industries that use them and the consumers who buy them. To ensure that they arrive efficiently from the production site to consumers, there is a set of operations that cannot fail.

These operations are the links in the distribution or supply chains and are interconnected in complex mechanisms, essential to the international trade of goods. When everything works we don't even realize they exist, but countless events have highlighted their vulnerabilities.

The COVID-19 pandemic was one of the most extreme events to disrupt global supply chains, but many others, including political conflicts, have disrupted these mechanisms, from the war in Ukraine, which had major implications for the distribution of grain and energy, to the growing insecurity in the Middle East, which led to the diversion of merchant ships from the Red Sea, increasing the time and cost of transporting products from Asia.

Locating production “closer to home” is therefore an issue considered by several companies and decision-makers. But the fluidity of supply chains is not the only reason to favor a “deglobalization” movement that is changing the dynamics of international trade.

Rates: threats and opportunities

The idea of relocating production has also gained traction for protectionist reasons - to protect domestic production by imposing tariffs on products coming from abroad.

The most expressive example comes from the tariffs applied by the US to Chinese products, a reality that began even before the pandemic, at the beginning of Trump's first term. 

While on the one hand, these taxes promote North American production (to the detriment of imports) and contribute to government revenue, on the other hand, they are taxes on consumption, which lead to increased inflation, with consequences of various kinds:

• Products reach buyers at higher prices, reducing the purchasing power (and choice) of families and the competitiveness of companies that need them, with repercussions on business results and employment. 
• They create greater uncertainty in financial markets and greater volatility in stock prices, especially in the most exposed countries, sectors and companies.
• By reducing the income of individuals and companies, they indirectly lead to a reduction in the collection of other taxes.

In 2018-19, Americans will have paid about $80 billion in additional taxes because of the tariffs, the Tax Foundation estimated. The Biden administration has maintained most of these tariffs and increased them on strategic products such as Chinese semiconductors and electric vehicles, with a tax increase of around $3.6 billion.

The increase in tariffs on Chinese products (10%) and the new tax on imports from Mexico and Canada (25%) could be imminent at the start of Trump's new term. The Tax Foundation estimates that, in the long run, the combination of old and new tariffs could reduce US GDP by 0.4 percent and eliminate more than 344,000 jobs.

But tariffs, when applied strategically, can be effective in boosting the internal dynamics of strategic sectors and products. And they can also represent opportunities for those who know how to anticipate changes in the dynamics of international trade and identify companies, sectors and regions (countries) that benefit from an increase in demand and competitiveness, considering deglobalization and protectionism. 

This situation will include, for example, markets that benefit from the relocation of supply chains and are not subject to tariffs, and companies that develop innovative technologies and substitute products in the sectors most affected by “trade wars”.