Dive Brief:

• According to a report from Bloomberg Economics, ongoing uncertainty in the world economy generated by the U.S.-China trade war has more than doubled the financial impact of the Trump administration's tariffs, coming in at a $585 billion hit to global GDP.
• The report finds China's economy would be hit hardest, with growth dropping a full 1% by 2021. The U.S. economy also faces a slowdown of roughly 0.6%.
• Last month, the U.S. Federal Reserve reduced interest rates for the first time since 2008 after a survey from the Federal Reserve Bank of New York found many major companies' margins were approaching their limit after absorbing the impact of tariffs and trade uncertainty. Bloomberg Economics' report authors believe if central banks have to lower rates again as the economy falters toward a potential recession, global GDP will be 0.3% lower in 2021 than if the trade war hadn't occurred.

Dive Insight:

"The tweet is mightier than the tariff," Bloomberg economists Dan Hanson, Jamie Rush and Tom Orlik wrote in the report. In addition to the financial impact of the duties, the president's "...contradictory takes on the progress of negotiations with Beijing send a chill through businesses that are making decisions about investing and hiring."

As a result, manufacturers and retailers alike have reported pulling back on planned investments, eating tariff costs to avoid raising prices or spending additional resources on physically moving their supply chains, resulting in anemic outlooks for future growth. The high cost in time and financial resources to mitigate tariff uncertainty is diverting investment away from growth and innovation measures, which analysts believe could negatively affect the U.S. economy now and in the future.

U.S. manufacturing activity dropped this month for the first time since 2009, according to a report from IHS Markit, and volumes across trucking and rail freight have slowed significantly as demand has begun to soften.

For procurement managers, there is increasing pressure to cut costs as firms brace for impact.

"Finance and procurement professionals ... are likely to be the first in their organizations to perceive and deal with the impact of a recession," Nikesh Parekh, co-founder and CEO at Suplari, a finance analytics firm, said in a press release. The company's recent survey found 77% of procurement and finance managers are anticipating a recession by 2021, and 30% of them feel unprepared should it occur. For those that are preparing, cutting costs and gaining visibility across multiple tiers of suppliers are top priorities.

In addition, for firms making long-term investments, funds are increasingly being directed towards diversifying sourcing to mitigate the impact of the China tariffs. Many companies are looking to move within Asia, focusing on growing their base in Vietnam, India or Indonesia, for example.

However, according to a recent Wall Street Journal report, the transition is lengthy and far from seamless as the labor force, manufacturing equipment and sourcing networks in these alternate countries are often not nearly as robust as China's, resulting in higher costs.