Global trade has opened the doors to financial growth for thousands of U.S. companies, from small retailers and medium-sized technology firms to large aviation corporations. But will those doors close if the current U.S.-China trade war continues? Many business leaders, along with countless employees at companies affected by tariffs, are asking that very question while experts are suggesting that the conflict’s economic impact will worsen in 2019 unless a resolution is reached.
Negotiations between trade representatives from the U.S. and China are ongoing, but predictions about an eventual deal remain just that: predictions. Given the amount of revenue and the potential number of jobs at stake, it’s critical for your business to understand what continuing tariff hikes could mean for the future, and some of the ways your organization can maneuver through the storm.
First, the Numbers
Many U.S. companies have become increasingly reliant on trade with China over the last decade. According to the U.S.-China Business Council, growth in American exports to China is outpacing the rest of the world. In 2017, more than $127 billion in U.S. goods went to Chinese consumers and businesses. Today, China is the third largest market for American products and services, driven in part by the tremendous growth in global e-commerce. At the same time, many U.S. companies rely on products made in China; these can take the form of retail goods destined for re-sale, component parts and materials, and business machines. The bottom line is that tariffs imposed by the U.S. on Chinese goods, and retaliatory tariffs placed on U.S. exports to China, alter costs and prices for the growing number of businesses who now trade with China, and who must decide when and how to pass heightened costs on to consumers.
A new campaign called Tariffs Hurt the Heartland aims to make the case that the trade war will have damaging effects on U.S. businesses, workers, and buyers – and that the effects are already being felt. The campaign is the product of a coalition of more than 200 trade associations from the areas of agriculture, manufacturing, retail, technology, oil, and more, and their stated goal is to promote an end to the trade conflict. Among other things, the group aggregates and supplies information. It reports, for instance, that duties on steel and aluminum cost U.S. companies $545 million in September 2018 alone. They also report that half of all U.S. manufacturing jobs depend on exports to China.
Diversifying to Thrive
If your company exports to China, or if you rely on goods and materials produced in the country, it’s important to examine how you can diversify your international audience and your supply chain. While China is a critical market for U.S. exports, many countries across Asia, Central and South America, and Africa are growing in global significance. As tariffs imposed by China begin to affect the country’s economy and slow demand for U.S. products, as they reportedly have already for Apple, moving into new markets can help offset declines. Your organizations should actively begin researching potential new countries for your exports.
In addition, while Chinese factories produce a significant number of products sold in the U.S., other countries are gaining ground. Vietnam, for instance, is quickly becoming a manufacturing leader, a fact which is also boosting its economy and, in turn, increasing its attractiveness for U.S. exporters. Consider also that many Chinese firms are taking their resources and knowledge and expanding to build facilities in Vietnam to produce goods.
Understanding Foreign-Trade Zones
For companies importing products from China that are subsequently exported to other countries, foreign-trade zones can serve as a vital tool to minimize duties. Authorized by the federal government, trade zones are secure areas – generally in or near ports of entry – that are under the supervision of U.S. Customs and Border Protection (CBP) but are considered outside of the agency’s territory upon activation. These may include docks at a shipping port, warehouses, or manufacturing facilities, for example. Merchandise exported from other countries can be moved into zones for operational purposes, including storage, exhibition, assembly, manufacturing and processing. There are options for companies to request that the CBP designate a specific area, such as a warehouse, as a foreign-trade zone, and ultimately will see reduced duties on goods brought into that area. If your business imports products or materials from China for eventual export, trade zones could provide an important offset in the wake of increased tariffs.
Assessing Duty Drawback Potential
In addition to trade zones, importers can see potential benefits from drawback, also known as “duty drawback.” If your business imports goods for subsequent export, you may be eligible for a refund of certain duties under drawback provisions. Again, a reduction in duties on merchandize brought in from China can help mitigate the burden of increased tariffs. To find out if your imports are eligible, and how to file for drawback, visit the CBP website.
While the ultimate outcome of the current trade conflict with China is unknown, there are steps your company can take to gain control of your global plans. The first step should be to consult with your international logistics provider – an experienced expert can provide valuable insight to inform your strategy.
Is your business affected by increased tariffs? Let us know on Twitter @DHLUS.