Seismic Shifts in the U.S. Economy: Impact on the Manufacturing Supply Chain

U.S. manufacturers are benefiting from currency valuations that make U.S. exports more competitive overseas, but two countervailing factors could disturb the current equilibrium. For manufacturers, the past several months have produced seismic shifts in the global economic landscape. Four major macroeconomic factors are at work: the relative value of the dollar, the new U.S. tax law, NAFTA renegotiations, and proposals for a more punitive regime of U.S. tariffs for a range of imports, including steel and aluminum products.
In today's global environment, each of these events has ripple effects for manufacturers due to the complexities of supplier relationships. Indeed, 86% of corporate spending is now directed to external suppliers, a major increase over the past 20 years, and each event has unexpected implications. Following is more perspective as we all fasten our seatbelts and prepare for the shifts still to come.
U.S. manufacturers continue to benefit from currency valuations that make U.S. exports more competitive in overseas markets. Over the past 12 months, the U.S. dollar has declined about 7% relative to a basket of 16 foreign currencies that account for the vast majority of global trade. This “discount” makes U.S.-priced exports more attractive compared to competing products denominated in the non-U.S. currency.