Can the US election affect Danish supply chains?

Supply chain resilience is crucial. Businesses learned this the hard way during COVID-19.

Not long after the pandemic, it was not another global crisis that tested the supply chains. It was a ship. 

In 2021, the massive container ship "Ever Given" blocked the Suez Canal for six days, disrupting one of the world’s key trade routes. The result? Shortages at factories, suppliers and retailers worldwide.
 

The US election could impact Danish supply chains. 

- Kim Sundtoft Hald, Professor

So, how have Danish companies worked to make their supply chains more resilient? And should they consider the outcome of the upcoming US presidential election in their risk assessments?  

US-China relations could have an impact

“The US election could impact Danish supply chains. While I am not a political expert, Donald Trump’s talk of tariffs – especially against China – heightens the risk of trade wars, which creates uncertainty in various parts of the supply chains,” says Professor Kim Sundtoft Hald, who is a researcher and lecturer of supply chain management at CBS and, together with Johanna Schönberger, published the article “Driving Supply Chain Flexibility in an Uncertain and Volatile World” in Supply Chain Management Review earlier this year.

When it comes to navigating supply chains in a volatile world, the US presidential election could indeed matter. Kim Sundtoft Hald highlights that US foreign policy could become more unpredictable under Trump, and there are at least six global risks that Danish companies need to factor into their supply chains.
 

Six major threats

“I am not saying all of them are tied to US politics, but they are areas many businesses should be attentive to,” he notes.

1. The Taiwan situation: More than half of the world’s microchips are produced in Taiwan.

2. US-China relations: This matters on multiple levels, especially how the conflict between China and Taiwan could develop. About 50% of all container ships sail through the Taiwan Strait, which is one of the busiest shipping routes. Any blockade would disrupt supply chains.

3. The situation at the Horn of Africa: Houthi attacks on shipping in the Red Sea have led to longer shipping times and higher freight costs.

4. The war in the Middle East: What impact will it have on the global economy?

5. The war in Ukraine: How will it affect global food production?

6. Global cyberattacks: These could cripple supply chains.
 

Businesses have learned from the pandemic

Kim Sundtoft Hald played a major role in an earlier research project that found around 80% of Danish companies experienced more supply chain disruptions in 2020 than the previous year due to COVID-19.

“That says something about the impact of the pandemic but also highlights that some companies lacked resilience,” says the CBS researcher. 

However, he points out that Danish businesses are now much more aware of the importance of risk management. “You need to be prepared for crises and know your weak links.” 

He emphasises that transparency within the supply chain is essential: “Companies need to have digitally connected systems and transparent data across functions, customers and suppliers, as this helps pinpoint exactly where in the chain problems might arise and what the consequences could be.”

The supply chains remain the same

While companies have improved their risk strategies and analysis, they still face a significant challenge: the structure of their supply chains has not changed. 

Additionally, production in Europe is now quite limited.

- Kim Sundtoft Hald, Professor

Large parts of their production are still in Asia, which is hard to change because it is where the costs are lowest. 

“Additionally, production in Europe is now quite limited”, says Kim Sundtoft Hald and points out that some companies, particularly in the textile industry, are considering reducing their reliance on Asian production, however, the task is nearly impossible, as there are no comparable low-cost production options elsewhere.

“The drive to cut costs and improve efficiency has made supply chains global and therefore more vulnerable, but this is not a problem unique to Denmark,” says Kim Sundtoft Hald.

No country can stand alone

For the same reason, he doubts that any single country can bring all its production home and become completely independent of the outside world, as some have interpreted Donald Trump’s political vision.

“For example, you cannot produce a modern car from scratch without raw materials or components from other countries,” says Kim Sundtoft Hald and adds that there are typically two different strategies for protecting supply chains: ‘buffering’ and ‘bridging’.

US companies tend to prefer ’buffering’. In practice, this means building larger inventories and trying to source materials closer to home. Meanwhile, Danish companies opt for ‘bridging’.

Strong relationships build resilience

“’Bridging’ means thoroughly analysing your value chain and building strong relationships with various links in the supplier and customer network. Qualities like openness, respect, collaboration and loyalty help create high resilience in the supply chain. The company needs to build enough goodwill with suppliers that they – or their networks – will step up during a crisis,” explains Kim Sundtoft Hald and points to three crucial factors companies should focus on for their supply chains:

Have a solid risk assessment. 

Ensure transparency across the chain and its processes. 

Build strong relationships with customers and partners.

“And flexibility is always a good thing. For example, can you have two suppliers instead of one? And does it make sense to have production in more than one region – even if it might be a bit more expensive?,” the CBS researcher points out.