Tariff torment: China’s retaliation on US trade
Monday, July 02, 2018
The escalation of tariff tension between the United States and its allies is reaching a fever pitch this month, with a growing tit-for-tat list on both the Chinese and American sides of a very public disagreement.
The Trump administration’s steel tariff mandate — a hefty 25 percent on imported steel — earlier this year appears to be the proverbial spark that landed on a powder keg of inter-country trade issues. Canada became one of the first allies to make its displeasure known, but China wasn't far behind.
Now, Canadian stances on imported maple syrup pale in comparison to the heavy hitting threats taking place with the United States' largest trading partner.
Gloves Off, Tariffs Up
China made its feelings about the initial round of tariffs, including steel, crystal clear: Beijing officials went on record referring to the measures as "blackmail" and threatening retaliatory measures.
Beijing followed through shortly after, releasing a list updated from an April version of goods slated for tariffs. The new list held the same overall value of goods at 50 billion, but diversified the list by increasing the line items that would be subjected to tariffs six times over — a move that virtually guarantees every American citizen will feel at least a small impact once the tariffs go into effect.
A particularly troubling inclusion on both sides is cars — a high value export good for both China and U.S., linked to potential industrywide, game-changing fallout if the tariffs continue into the future.
"Quantitative and Qualitative"
China, while it does import a significant amount of American goods, does not take in as much as it sends to American shores. That leaves it out of chips at the proverbial trade war poker table — it can only tax what's actually flowing into the country.
Instead, the retaliatory measures will go beyond a list, explained Beijing officials, and exercise "qualitative" measures as well. What that translates to is a very hostile environment for American companies operating in China, as they find themselves as unexpected collateral damage in a fight between their home nation and the country housing their overseas headquarters.
If these qualitative measures make it prohibitively expensive or difficult to continue business as usual on Chinese shores, it could mean many U.S. companies will be forced to shutter lucrative outposts and earning opportunities. While the Trump administration undoubtedly hopes that this will lead to the companies bringing jobs back home, the complex reality of the situation is that the two scenarios aren't an apples-to-apples comparison.
These aren't simply American companies dropped in a foreign land, they represent significant unrecoverable investments, an entrenchment in local culture and factories, and in some cases, the only profitable method for manufacturing their domestically sold products.
The Employment Casualties Are Starting
While they're small potatoes in the grand scheme of the escalating trade war with China, the 60 employees of Missouri-based Mid-Continent Nail are the first to fall under the unforgiving axe of the steel tariffs.
Financially cut off from the newly taxed Mexican steel used to make their products, the company — America's largest nail manufacturer — is likely to fold before Labor Day. These are only the first ripples. As the long tariff list of both American exports and Chinese imports continues to grow in scope and complexity, even resellers are bracing for impact.
The future looks pretty bleak for a number of industries relying on both raw material and finished goods trade, and hope for a reconciliation runs strong among companies already struggling to keep the lights on.
Whether the tariffs are a partial bluff intended to spur action or an ongoing necessity to dig American heels in against perceived trade imbalances remains to be seen.
In the interim, however, a growing number of businesses are paying closer attention to the news: the next addition to the lists could mean the end of their firms, unless they take steps to safeguard their stock, supply chain, and growth plans before the proverbial "other shoe" drops.
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