Op/Ed by Chris Devonshire-Ellis
As expected, China has retaliated against the US imposition of tariffs by increasing its own tariffs on more than US$60 billion of American products entering China.
The tariffs will kick in from June 1, allowing time for existing orders currently in transit to be imported under existing rates. However, any products arriving in China after that date will be subject to the new, higher duties.
That effectively means purchases of any products from the US under the affected categories will be subject to increased tariffs if ordered today, given standard shipping times.
Affected are some 5,000 American products that have been subject to additional China tariffs since September 2018, originally at rates of five or 10 percent.
Now, China will increase tariffs on products affected by the 10 percent rate to either 20 or 25 percent, depending on the product, while those subject to the five percent rate will be increased to 10 percent. Tariffs on certain products, however, will remain at five percent.
What these duties are depends upon the specific product.
The Chinese Ministry of Finance statement on the June 1 tariffs is here (Chinese only). The full list of products subject to the 25 percent tariff rate can be found here (again, Chinese only), full list of products subject to the 20 percent tariff rate here, products subject to the 10 percent tariff rate here, and products subject to the five percent tariff rate here.
However, from what we know about China’s tariff strategy so far, it is clear that the new June 1 import tariffs are largely targeted at American farmers – who form a significant part of President Trump’s voter base.
At this point, then, it is largely a political point designed to hurt Trump rather than a wider base of US exports.
To summarize, some of the key tariff increases include:
In the coming days, the overall picture will emerge as to how the increased tariffs will directly and indirectly impact US exports to China. Early signs, however, point to shares in the likes of Apple tanking, while the Dow Jones and other bourses also closed down. The Nasdaq, which is full of tech companies, is also jittery on the back of China tariff fears.
However, the situation could deteriorate even further and fast if the US decides to impose tariffs on all China made products, which Trump has indicated he will do. In that event, China would probably do the same on US products, having a huge impact on technology driven items, automobiles, and all other American manufactured items.
What to do about this?
The problem with the current US-China relationship is that it has lost predictability, and this makes it tough for manufacturers based in both countries who are reliant on component parts or products from each other’s markets.
To get around this, businesses in China who are reliant on imports from the US will now need to source alternatives from elsewhere.
My view, based on over 25 years of dealing with China on the ground and understanding its history and motivations, coupled with firsthand experience of the recent sanctions upon Russia and how Russia responded (its growth rate is now higher than that of the EU) is that China has prepared for this eventuality in a manner in that the United States has not.
The economic mentalities between the two countries are also fundamentally different. The US is led by a quarterly results cycle that imposes short-term pressures, coupled with a relatively small time frame of four year government cycles, of which half is taken up by lobbying. China, on the other hand, is not under such short-term pressures and its population and businesses can adapt.
There is also the feeling that China is eager to effectively decouple from the US in trade and cast its purchasing net far wider to other countries more sympathetic to its needs.
China has been preparing for this – as I noted yesterday, Beijing has tripled its investments into emerging Asia over the past year. The alternatives to purchasing American products are already mostly in place and backed up by far more free trade agreements than the US currently has.
We wrote here about China’s FTAs in South Asia, here about its FTAs along the Belt and Road Initiative, and gave a warning that in 2019, foreign manufacturers in China must source new supply chains and suppliers. That time has now arrived.
The good news for foreign companies based in China – and now subject to these increased tariffs on American products – is that many, if not all, can easily be sourced from other countries. That is partially China’s point – it is not only giving Trump a black eye but also quite deliberately weaning its own businesses and consumers off buying American.
At Dezan Shira & Associates, we have a pan-Asian network that can assist with getting you quotes for alternative sources, shipped to China. With our own offices in the following countries, we are able to provide sourcing advice and assist with arranging buyer-seller contracts, insurance, and other ongoing assistance to ensure you get what you want from alternative suppliers.
The Asian countries we can directly assist with sourcing products from are:
The European countries we can directly assist with sourcing products from are:
If you need assistance with this, please email our new China tariff hotline at email@example.com and provide the HS code, quantities required, and relevant port.
We will then provide a quote for the related sourcing work and obtaining purchase quotes.
Longer term, having studied the recent Russian experience, as well as seen China’s preparations, I suspect that China will hold out and deliberately set out to buy less from the US and begin sourcing far more products from Asia, Europe, and Russia.
For China-based businesses, that is also now the only alternative strategy to follow in order to minimize US risk. It is also a great opportunity for other Asian, European, and Russian suppliers to gain greater a market share in China.
Dezan Shira & Associates have over 25 years worth of experience in assisting foreign investors in Asia, and have a network of offices across China, India, the ASEAN nations, Russia, and Europe. For sourcing assistance please email us at firstname.lastname@example.org or visit us at www.dezshira.com.
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Op/Ed by Chris Devonshire-Ellis