If like many of our clients you sell products into the USA you will probably be at least aware of the growing USA trade war tarrifs being imposed on imports most notably from China, but you might not have realised that your products could be next.
Many of our clients have products made in China which are eventually destined for shipping to the USA, and as the trade war intensifies, so more and more of these products are being hit with punitive USA trade war tarrifs. Although the increased tariffs were initially applied to Steel and Aluminium products, the latest “Supplemental Action Notice” includes retaliatory USA trade war tarrifs of up to 25% on top of those already applied to a vast range of goods including consumer electronics. In total this third list of new tariff lines which came into effect in September applies to $200 billion of imports across 6,031 product sectors. So many in fact that it’s now more likely that your products are included than not. It doesn’t seem to matter any longer whether the USA has its own domestic manufacturing capability in need of protection from cheap imports – this is now more about retaliation than commercial logic. Indeed I’ve spoken to clients who tell me that they would love to be able to get their goods made in the USA to save on transportation costs, but have been unable to find a manufacturer able or willing to even quote!
Tim Cook, CEO of tech giant Apple wrote to President Trump warning him that tariffs against China could result in lower US growth and competitiveness plus higher prices for US consumers saying “It is difficult to see how tariffs that hurt U.S. companies and U.S. consumers will advance the Government’s objectives with respect to China’s technology policies,” Apple said in the letter. “We hope, instead, that you will reconsider these measures and work to find other, more effective solutions that leave the U.S. economy and U.S. consumer stronger and healthier than ever before.”
Click the link to download a PDF of the Apple letter in full
But in reply the president simply said and a blunt Tweet that “Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China.”
If only it was that easy – it’s not simply a question of building plants, it’s a questions of upskilling and training a workforce that hasn’t been involved in manufacturing consumer microelectronics for a generation or more. I have been lucky enough to work in both the USA and also in China, and I know where I would go for high quality consumer electronics – the City of Shenzhen in Southern China, the place chosen by Apple and many other global consumer electronics manufacturers. Instead of promoting a new wave of investment in the USA, what happened as a result of this exchange back in September was an almost instant fall in the Apple Share price. And Apple aren’t alone in condemning the new tarrifs, Intel, the world’s second-largest microchip manufacturer maker said in a letter “Semiconductors are America’s fourth-largest export, and our industry has a global trade surplus of over $6 billion and a surplus with China of close to $2 billion in 2017,” the letter went on “We are puzzled as to why the Administration may be using tariffs in part to re-engineer global ICT (information, communication and technology) supply chains that have served US companies so well.” USA trade war tarrifs may simply be an expedient way for the USA to raise consumer taxes while telling the very people paying those increased taxes that they are necessary in order to hit back at China, its seems that some at least will believe it.
First you need to know whether your goods are effected. To download a PDF of the full list of goods in the latest Supplemental Action Notice click the link here Supplemental Action Notice 9-18-2018
So if your goods are effected what should you do about it?
Well the first thing is don’t assume that USA trade war tarrifs are going to end any time soon, it’s a game of brinkmanship and neither side wants to back down. High import tariffs are the new reality for importing into the USA, and hoping for the best is not a strategy. Unless you can simply absorb a 25% increase in your unit cost you need to try to claw back some of that lost margin. Many of our clients sell globally including of course into the USA and many even have offices in the USA but still have goods manufactured in the Far East including China.
One of our Technical Translations clients has responded to the potential loss of margins in the USA by cutting out their US distributors and selling direct since there is no longer any room for two margins in their product. This is especially ironic really since this is an example of the Trump administration’s tariffs directly costing US jobs. Another Technical Translations client is taking this a step further and pulling out of bricks and mortar retail in the USA altogether and just selling online, saving themselves both the retailer and distributor margin. Of course ultimately the effect of tariffs is to raise prices for the end user or consumer, and since USA business is now operating in a protectionist marketplace, they are free to raise their prices – if all your competitors were suddenly 25% more expensive than you, then you could raise your prices by 15% and still be competitive, but who is going to move first on increased prices? I’m pretty confident that before long USA consumers are going to start to see a steady creep upwards in pricing, probably as new models of phone, tablet and other items come out. It may not be possible to put up your price 25% on the 1st January next year in direct response to the USA trade war tarrifs but over the course of 2019 you are likely to see your competitors start to move upwards and you can follow suit.
What else can you do?
Well there’s a big wide world out there, and if the USA costs you 25% more than it should, then why not look at the emerging markets of South America like Brazil? Brazil is the world’s eighth largest economy by nominal GDP and having suffered a recession until 2017 they are now seeing sustained growth again. The Middle East, Africa, Eurasia and India are all seeing growth which far exceeds that of the USA, and if you are new to these markets we can help with cultural insights, routes to market and of course translation.
