US trade tariffs can’t change the fact that China is the world’s manufacturing superpower

Companies in the US, and elsewhere, need Chinese suppliers, as there is still no viable alternative in terms of capability, price and scale. Meanwhile, businesses must develop broad strategies to cope with the US tariffs

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A worker measures a newly manufactured ball mill machine at a factory in Nantong, Jiangsu province. A recent survey found that, despite the trade war, around 60 per cent of US companies were not even considering relocating manufacturing from China to other countries. Photo: Reuters

Published: 1:00am, 11 Jul 2019Updated: 1:52am, 11 Jul 2019

Businesses can be relieved that the United States and China are once again returning to the negotiating table after a seven-week stalemate that had put significant pressure on both Chinese manufacturers and US importers.

Although the truce has averted new US tariffs on an additional US$300 billion of Chinese goods, past rounds of tariffs remain in effect and there is no indication that the trade war will end any time soon. The uncertainty makes it critical for businesses to have dynamic, efficient sourcing strategies.

Previous tariffs on US$200 billion of Chinese goods (set last year at 10 per cent and increased to 25 per cent in May) were a direct blow to US companies sourcing a large share of taxed goods from China. Similarly, in acute situations on the other side, where Chinese manufacturers’ exports to the US are sometimes subject to DDP or delivery-duty-paid terms (which obligate the seller to pay duties in the destination country), tariffs can be an existential risk.

For many affected businesses, the difference between 10 per cent and 25 per cent tariffs can be critical because it takes the option of a negotiated absorption of the tariff increase off the table. Handling the initial 10 per cent was a challenge last year, and there might not be enough room to handle an additional 15 per cent.

For company management, just keeping up with changes in tariff categories and rates can be a challenge amid day-to-day operational responsibilities, not to mention the additional time required to assess the tariffs’ impact on business.