US companies in China are already being negatively affected by the US-China trade war – and many expect the latest round of tariffs will deepen the impact.
Today (September 18), US President Donald Trump escalated the trade war, slamming a 10% tariff on US$200bn of Chinese imports. China is expected to retaliate and is reportedly reviewing plans to send an envoy to the US for trade negotiations.
74.3% of US companies operating in China expect these tariffs to negatively affect their business, with 60% saying they were hurt by the initial round of tariffs on US$60bn of goods from China.
Furthermore, US companies in China fear the US tariffs will cause them more damage than the second round of tariffs expected to be imposed by China on US$60bn of US goods, according to the survey undertaken by the American Chamber of Commerce for China (located in Beijing) and its counterpart in Shanghai.
Given that China imports fewer goods from the US, it has less capacity to implement quantitative tariffs on US goods. Because it can’t match US tariffs dollar-for-dollar, it is expected to look at qualitative measures.
More than half of the US firms surveyed have reported suffering the consequences of these measures. Chief among them are increased inspections (27.1%), slower customs clearance (23.1%) and complications stemming from more bureaucratic or regulatory scrutiny (19.2%).
The chairman of the American Chamber of Commerce in Shanghai, Eric Zheng (also the CEO of AIG Insurance in China), says that he supports Trump’s efforts to reset trade relations and address longstanding inequities, but believes “we can do so through means other than blanket tariffs”.
He adds: “This survey affirms our concerns: tariffs are already negatively impacting US companies and the imposition of a proposed US$200bn tranche will bring a lot more pain. If almost a half of American companies anticipate a strong negative impact from the next round of US tariffs, then the US administration will be hurting the very companies it should be helping.”
The latest raft of US tariffs will come into effect on September 24. By the end of the year, the tariff rate will be increased to 25%. This is presumably to allow US companies to relocate their supply chains to other parts of the region, but the American Chamber of Commerce survey shows that very few are actively seeking to do so.
Some 64.6% of firms quizzed are not yet considering relocating their manufacturing out of China, while just 6% are thinking of moving operations back to the US – one of the motivations for Trump’s policies.
Relocating manufacturing bases is costly and time-consuming and is likely only to be considered as a medium to long-term plan, should the trade war persist.
“If a company wants to shift out of China into Vietnam, say, that will take three to four years. For items which are very switchable, take soya, you can switch from the US to Brazil. In the short term, I expect companies to look for tactical places to switch sourcing. In the medium term, if it [the trade war] really stays, they will look at rebasing manufacturing into other locations,” Farooq Siddiqi, global head of trade at Standard Chartered, told GTR in a recent interview.
Many business organisations have opposed the Trump administration’s trade policies since he came to office, and the opposition to the latest tariffs is widespread.
“American businesses and consumers are bearing the brunt of the emerging global trade war. By now, it’s plain to see that tariffs are inflicting harm on the American economy and will continue to do so unless the administration changes course,” reads a statement on the US Chamber website.
Naomi Wilson, director of global policy for China at the Information Technology Industry Council, says that the tariff regime creates uncertainty on both sides, causing difficulty in supply chain management.
“A broad array of sectors – from tech to retail and farmers – are feeling the impact of US-China trade tensions. We continue to urge both governments to come to the table and directly address serious concerns with China’s trade practices and policies. Continued implementation of tariffs will only harm consumers, manufacturers and businesses, regardless of nationality. Our economies are inextricably intertwined, which means that we cannot inflict pain on each other without also hurting ourselves,” she tells GTR.
The report follows one by the European Union Chamber of Commerce in China, which also decried the detrimental nature of the trade war on European businesses. This study, in which views were collected from 193 European companies, found that it is causing “significant disruptions to global supply chains and is seriously impacting companies that are neither Chinese nor American”.
Of those surveyed, 53.9% viewed US tariffs as negatively affecting their business, compared to 42.9% for Chinese tariffs. On both counts, these figures are a factor of ten of the numbers that viewed the respective tariffs positively.
In the EU survey, 17% of respondents said they were holding back on investment as a result of the conflict.