The US and China trade war is causing serious implications for American manufacturers. Here's what you need to be aware of.
When Trump ran, it was on the idea of "America First", in trade especially.
So the recent trade war doesn't come as a surprise, especially to his many supporters.
And regardless of your political stance, or whether you think the trade war and tariffs are a good or bad idea, the fact remains that the implications are enormous.
The impact will ripple through suppliers, manufacturers, and on to consumers. But even with the best analytical minds in the world commenting on the issue, in a time when policy can be defined by a tweet, the future is anything but clear.
As manufacturers, the US and China trade war raises a lot of questions.
And many American manufacturers may wonder if they will be able to see their way through this trade war with their business still intact.
So let's take a look the trade war, the policies that shaped it, and the implications for American manufacturers.
Leading up to the Trade War
When Donald Trump ran for president, a huge part of his platform was the assertion that China was robbing the US on trade.
And there is merit to that argument.
The US imported $505 billion in goods from China in 2017, while China only imported $130 billion - clearly a stark contrast.
In addition, China has a long-standing policy of requiring other countries to share their intellectual property with China to do business.
China was arguably getting the better end of the deal in terms of trade with the US. And the problem has a history going back decades. China has been historically brilliant on trade, doing its level best to get the better end of every deal.
It makes sense. When your country enters into trade deals, you want to ensure that you get the best deal possible. And with China being the powerhouse trading partner that it is, they have a huge amount of bargaining power.
They've leveraged that bargaining power to ensure beneficial trade deals. And while the US is their largest trade partner, reaping far more Chinese trade dollars than any other country, there is still the small issue of the more than $300 billion trade deficit between the two countries.
The Trade War in Context
On the campaign trail, Trump said Chinese trading was the biggest theft in history.
This kind of hyperbolic language is arguably what won him the presidency, and he did indeed follow through on actions designed to remedy the situation. Let's look at a timeline.
In April of 2017, Xi Jinping visited the President's Florida estate, and from that time until November of 2017, it looked as though a trade war might be avoided.
Then, between February and March of 2018, Trump suddenly began announcing tariffs and other trade actions. Some of these affected all trade partners, such as the 30% tariff on solar panels and the 20% tariff on washing machines.
Others were specific to China, such as a World Trade Organization suit filed against China, alleging unfair trade policies.
Later in March came tariffs on steel and aluminum, with notable country exceptions. And while the US only imports about 2% of its steel from China, the move still carried a distinctly targeted flavor.
In April, the United States Trade Representative released a list of over 1,000 products that would be subject to a 25% tariff, beginning in July.
In a classic tit-for-tat move, China then proposed a 25% tariff on $50 billion worth of US imports, matching American tariffs in both percentage and dollar amount.
What followed was a back and forth battle as the US enacted more tariffs, China retaliated with tariffs of their own, and on and on. A brief truce in May seemed to hold some sliver of hope for resolution, but in July of 2018, the first wave of tariffs was instituted, marking an official beginning to the trade war.
Since then, WTO suits have been filed by both sides, and additional product lists have been released, bringing the overall tariff worth to over $200 billion, much of it on supply and manufacturing materials, as well as computer supplies.
Implications for Manufacturers in the US and China Trade War
Now for the part you came here for. If you're in manufacturing, what does this mean? Can you stay afloat with these new tariffs?
The larget issue for manufacturers isn't cost, although that is a huge factor. Most manufacturers and suppliers can't simply absorb the damage of a 25% tax. Instead, the cost shows up in the product price, making products more expensive for manufacturing firms looking to buy raw materials.
No, the bigger issue here is supply chains.
In the global economy the modern world has created, supply chains have become complex, monstrous things. Companies can and do source materials from all over the world and most notably, from China.
Supply contracts are complicated and have to be worked out by meticulous professionals. They are complex even before you add in new tariffs and international relations.
The key for manufacturers is going to be two-fold. First, flexibility in terms of supply chain shake-up, and second, the dexterity to keep up with a policy that can change with a tweet.
And we all know that supply chains can't be changed and reshaped on the spur of the moment. Even in the digital world, contracts and supply change don't move at the speed of technology. Delays and roadblocks can be disastrous for companies still seeking to cement their hold in an increasingly global industry.
Is There Hope for American Manufacturers?
Manufacturers MAY be able to hang on as they weather this trade-based storm. And a newly Democratic house MAY be able to mitigate some of the actions the President can take on trade. So the US and China trade war may not be a disaster for American companies.
That said, it is vital that manufacturing firms not grow complacent. It is vital to make contingency plans if certain contracts are too affected by the trade war and tariffs. As with any emergency, having back up and action plans may mean the difference between solvency and disaster.
For more on shifting your supply chains a little closer to home, contact us today!