Tariffs bite as Canadian and Mexican factories sharply reduce purchases
Amid US President Trump’s trade war with his Nafta partners, Canadian and Mexican manufacturers sharply reduced their purchases of raw materials and components in February, according to the GEP Global Supply Chain Volatility Index.
The index, which – which tracks demand conditions, shortages, transportation costs, and inventories and backlogs across 27,000 global firms – declined slightly to -0.45 in February from -0.21 in January. A value above 0 indicates supply chains are being stressed, while a value below 0 means supply chain capacity is being underutilized.
In North America, the regional score rose marginally to -0.18 from -0.22 to reach a seven-month high. That growth was entirely driven by US manufacturers, who boosted demand for raw materials and components in February in an effort to avoid higher costs from additional tariffs.
Canada and Mexico decreased their demand for inputs because US firms refrained from placing orders due to tariff threats.
Asian supply chains remained at full capacity in February, staying flat at 0.00 compared to 0.03 in January. Regional powerhouses China, India, and Taiwan reported strong export growth, driving factory purchasing activity.
“With tariffs driving uncertainty, US manufacturers are racing to secure materials, while Canadian and Mexican suppliers are feeling the squeeze from weaker export demand. In contrast, Asia’s supply chains are operating at full capacity, fueled by strong export growth,” said Krish Vengat N., vice president of consulting at GEP. “Companies must remain agile — diversifying supply sources and optimizing inventory strategies to navigate this ongoing volatility."
Europe’s supply chains continued to be underutilized as the continent’s industrial recession persisted, with the regional score falling to -0.72 from -0.61. However, there were early indications of recovery as a downturn in factory demand for inputs cooled to its weakest in two-and-a-half years. Relatedly, Trump’s efforts to torpedo the American military industrial complex may quickly spur growth for large European manufacturers such as Rheinmetall, Dassault, Thales, and Airbus.
Overall, global stockpiling activity decreased in February, as manufacturers' appetites for excess stock in their warehouses remained low. Global material shortages remained below the long-term average.
Transportation costs remained at their highest point in six months, though still at a level close to normal, by historical standards.
