Dive Brief:

• One-quarter of businesses have no contingency plans to mitigate risk posed by the U.S. trade war with China, according to responses from 276 supply chain professionals across industries surveyed by DHL's Resilience360. Automotive and manufacturing businesses were most likely to have no contingency plans in place, the survey said. 
• One third of businesses are taking no action to mitigate tariffs. Seeking components and assembly outside of China is the most popular remedy (20%) to avoid the impact on operations in China. This is followed by applying for tariff exemptions (15.7%), finding alternative sourcing within China (12.8%), and shifting production out of China entirely (11.7%).
• Just 8.3% of respondents reported inaction based on a belief that tariffs would soon be removed. At the same time, just 28.4% of respondents have tariff contingencies planned out beyond the 12-month mark and 4.7% have contingency plans spanning farther than six months ahead. 

Dive Insight:

With 68% of survey respondents reporting their businesses are somewhat affected, affected or highly affected by tariffs, one might expect some sort of action across the board. But 33.5% of organizations are taking no action to mitigate current or future tariffs while just 29.5% reported being unaffected by them. A small percentage of the business community has chosen the ostrich's strategy on tariff mitigation. 

DHL's survey reveals wide-ranging levels of concern and proactivity within the global business community. What is consistent is other aspects of doing business in China are becoming more difficult in the age of tariffs. 

The report said respondents "commented on the increase in delayed orders, less supplier reliability, and additional work needed to mitigate the short- term impact of tariff escalations that could result in a long-term strategy aimed at sourcing away from China."

Since the start of the trade war in 2018, private companies have revealed source diversification work already in place that suddenly became prescient in light of tariffs. 

Fashion brand Michael Kors chose to shift sourcing away from China beginning five years ago when supply chain managers sensed rising labor costs were here to stay. 

Of respondents who moved sourcing out of China, tariffs were the most common reason (36.1%) followed by market access and regulatory restrictions (21.1%) and rising labor costs (19.7%). 

Electronics, manufacturing and consumer products firms were most likely to shift sourcing away from China, while most of the life sciences and healthcare respondents were not looking to move production. Resilience360 notes this dynamic demonstrates the regulatory hurdles and specific expertise found in China that makes supply chains difficult to reroute. 

Of the 27% of respondents also not seeking to relocate supply chains, the time and cost required to do so were major stated barriers, but long-standing supplier relationships were the most common (behind not being affected by tariffs).

India and Vietnam are the top two destinations for businesses looking away from China followed by the European Union and Mexico. Just 7% of respondents considered moving production from China to the United States. 

Of those who have shifted sourcing, finding the right source components (20.2%), forging a connection with new suppliers (17.9%), and heavy port congestion and shipping costs (11.9%) are the biggest challenges reported. 

"Companies considering moving outside of China to avoid tariffs will need to be mindful that the logistics infrastructure in Southeast Asia, India, or other emerging markets may not necessarily be more developed than China when it comes to roads, rail lines, and port conditions," according to the report.