Triggering what China calls “the largest trade war in economic history,” the USA on July 6, 2018 imposed a 25% duty on $34 billion of Chinese imports.
Beijing immediately responded with tariffs on U.S. soybeans, meat and vehicles. Suzhou Huadong, which supplies supermarkets such as Walmart’s Sam’s Club in China, is just one of the early victims.
China’s retaliatory tariffs on U.S. goods struck just as one of its biggest meat importers was rushing a shipment from California through Shanghai customs. Now Suzhou Huadong Foods Ltd. is saddled with a stack of unaffordable American steak.
For automobiles and whiskey makers, to companies along the complex global supply chain, that defines modern manufacturing, it is a moment of reckoning as they grapple with higher costs and whiplashed some of the earlier business decisions.
Take Ford Motor Co. and Tesla Inc. for instance. Both automakers announced price cuts in China only weeks ago, making their Lincoln and Model S sedans within the reach of more consumers after China lowered tariffs on all foreign vehicle imports to 15%.
Now, those same models — if they are made in the USA — are subject to a 40% levy.
The ability of tariff-hit companies to weather the conflict may partly depend on the amount of stock they managed to import before higher levies kicked in. But once those supplies run down, they’ll have to absorb the tariffs or pass them on to customers.
BMW AG and Daimler AG also face higher costs because they import luxury models to China from their U.S. assembly plants. BMW says it won’t be able to absorb the higher levies completely and is calculating the necessary price increases.
Daimler declined to comment beyond saying it aims to offer competitive conditions to buyers. However, President Donald Trump is preparing tariffs on another $16 billion of Chinese goods, and he indicated last week that the final total could surpass $500 billion.
With neither side backing down, the prospect of a tax on almost every China-made product entering the U.S. and reprisals by China means many more businesses could come in the cross hairs.
Hemp Fortex Industries Ltd. isn’t going to wait. The Chinese maker of clothing and natural fabrics — and a supplier to U.S. and European brands — says it is seeking to move manufacturing outside China. More than half of the company’s revenue comes from American customers, potentially exposing them to any future U.S. tariffs on China-made goods.
Copenhagen-based A.P. Moller-Maersk A/S, owner of the world’s largest container line, warned that new tariffs “could have a serious negative impact” on global trade routes and threaten jobs.
China imported $130 billion of U.S. goods last year, less than a third of the value of U.S. imports from China. That means in an all-out, tit-for-tat trade war, China may have to retaliate with measures other than tariffs.
Chinese President Xi Jinping’s biggest weapons could be boycotts of American brands by his country’s legion of consumers.
Bloomberg / ABC Flash Point Business News 2018.