Soon after his inauguration in January 2025, President Trump threatened to impose tariffs of 25% on goods imported from Mexico and Canada. He said that such a move would force both countries to address the problems of illegal migration and the smuggling of Fentanyl into the United States. In his words, “Both Mexico and Canada have the absolute right and power to easily solve this long simmering problem.”

The statement demonstrated that President Trump is prepared to use tariffs as a diplomatic lever as well to achieve economic goals. Further evidence of his resolve came soon after when he threatened Colombia’s government with similar levels of tariffs if it refused to take back repatriated migrants. In what has been termed the ‘shortest trade war in history’, Colombia backed down and flights recommenced.

Whilst Trump’s focus on illegal immigration was well documented in his first term of office, the priority he is placing on addressing the challenges posed to society by the misuse of fentanyl is less well known, at least outside of the USA. According to the US Department of Justice, fentanyl is a synthetic opioid drug used as an analgesic (pain relief) and anaesthetic. It is approximately 100 times more potent than morphine as an analgesic. Whilst it has been approved by the US Food and Drug Administration (FDA) for prescription by medical professionals, large amounts of the drug have illegally found their way onto the streets, with around 100,000 people dying from overdoses each year.

Of course, tariffs on Mexican imports will not directly impact the volumes of the drug crossing the border. Rather, the threat is designed to pressure the Mexican government to take action against the criminal gangs involved in its trafficking. However, President Trump has inadvertently highlighted a major vulnerability of supply chains: the fact that legal channels are often ‘hijacked’ by organised crime to move illicit goods or illegal immigrants. The battle between government agencies and smugglers has, of course, been on-going for hundreds of years and combatting the importation of illegal shipments of Fentanyl is just the latest episode in the so-called ‘war on drugs’.

Modern supply chains have become ‘super-highways’ for the movements of any form of illicit products due to the sheer volume of goods being moved across borders, especially within regional free trade areas such as the USMCA, or indeed EU. Border agencies do not have the capacity or technologies to inspect shipments – even intercontinental movements of shipping containers – on any great scale. For organised crime, it therefore becomes a ‘numbers’ game’. When only, perhaps, 1% of containers are inspected, they are happy to absorb the loss of a tiny proportion of contraband seized, regarding this as what is called a ‘crime tax’ – a manageable business cost.

As I write in my book ‘Supply Chain Risk Management’, Mexico has become an important centre for value-adding processing and production for the narcotics industry; in fact, it would be termed near-sourcing in any legitimate manufacturing industry. A US Drug Enforcement Agency (DEA) report says that Mexican cartels produce fentanyl in clandestine laboratories with ‘precursor chemicals’ sourced largely from China and Hong Kong. These are typically shipped via mail services to the US, from there transported to Mexico where they are processed and then moved back to the USA where they are cut and diluted for further smuggling or pressed into counterfeit pills. A crackdown by China on the production of key chemicals in the process may lead to the development of other markets of origin, such as India. As has been the result of trade measures in legal industry sectors, a ‘China Plus’ supply chain is developing, with Chinese producers finding ways to maintain their trade with the USA through third countries.

Many ways have been developed over the years to move narcotics across the US–Mexico border and these are undoubtedly used for fentanyl. They include established (and ‘white’) logistics systems such as railroads, refrigerated truck networks and the major air express operators (as well as passenger vehicles). In one case (not fentanyl), an investigation exposed a network of employees working for a global express parcels carrier. The drugs were first dropped off at the employees’ houses before being taken into the parcels facility and infiltrated into the system. The agent leading the investigation said the case exposed, ‘vulnerabilities in the shipping infrastructure that have allowed for the undetected trafficking of narcotics for more than a decade’.

As with any supply chain, there is a reverse flow of money ‘up’ the supply chain. In the drugs world this tends to be in cash and often uses the same routes as the drugs on the return journey. One of the problems faced by organized crime is the ‘laundering’ of the money, and these costs have been estimated at 15% of the amount moved. Cryptocurrency is reportedly becoming ever more popular due to its characteristics of anonymity and untraceability.

The development of global transportation networks and the logistics services that support them has ironically resulted in a highly efficient conduit for illegal goods of all types. Air cargo carriers, express operators, shipping lines, road freight companies and freight forwarders are all unwittingly involved in a multi-billion-dollar industry. Whether fentanyl from Mexico, antiquities from the Middle East or ivory from Africa, criminals operate highly efficient and complex value chains, relying on the authorities’ inability to check the sheer volume of shipments moved.

However, this means that legitimate supply chains are at increased risk from intervention by border and other government agencies as well as increased levels of regulation. President Trump’s threat of tariffs will propel this issue up the list of political priorities and it is very likely that the ‘solution’ he is looking for will create additional friction in supply chains, reducing the overall efficiency of cross-border trade. This could have implications for near-shoring strategies, with one outcome potentially leading to more goods being made in or sourced from the US, something that President Trump may see as a good outcome for his policy initiative.

John’s book, Supply Chain Risk Management: How to Design and Manage Resilient Supply Chains (fourth edition) is published by Kogan Page.

Author: John Manners-Bell

Source: Foundation for Future Supply Chain / Ti Insight

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