The U.S.-China trade war has raged for over a year now, and after several rounds of futile discussions between Washington and Beijing, a phase-one trade deal was secured on Dec. 13, with President Trump confirming that the U.S. will lower its tariffs on Chinese products as part of an interim trade agreement.
However, the tensions have not diffused completely and the extended tariffs exchange ordeal has had a far-reaching impact on companies that do business in both countries. FreightWaves spoke with Shehrina Kamal and Timothy Yu, authors of a Resilience360 report on the impact of the trade war on global supply chains, to discuss the fallout of this trade scuffle.
Kamal initiated the conversation by pointing out that a large portion of respondents in their survey indicated that they were looking to move their business to India and Vietnam from China. The trade war sped up a trend that had already begun, with several South Asian countries working hard to capture businesses that were exploring a shift to another location.
For businesses considering a move out of China, there might be several qualitative factors at play in addition to the avoidance of added tariffs. Companies cited factors like market access issues, regulatory restrictions, rising labor costs, and increasing local competition as reasons for them to move their supply chains out of China.
That said, companies do need to contend with certain barriers to entry – like infrastructure and regulatory issues – at their now preferred destinations across South Asia.
“While there is an opportunity, these barriers to entry need to be worked through before companies can actually move their operations completely,” said Kamal. “Currently, these economies are not as prepared as China to accept the operations that are moving away.”
Yu, one of the lead authors of Resilience360’s report, added that 27% of the respondents chose to remain in China as they calculated that the costs of moving operations abroad would possibly cost more than the tariffs that they needed to contend with in the trade conflict.
For multinational companies that ran operations within China, 35.7% of the respondents viewed regulatory uncertainty as the largest non-tariff barrier to doing business, followed by 24% of respondents who considered customs clearance delays as their primary issue aside from tariffs.
“The trade war has gone on for much longer than anyone anticipated. It’s still quite an uncertain situation, and so it’s difficult to say how things will go. We have to keep in mind the U.S. elections that are coming up next year, and so as we get closer to them, things may stabilize a little bit,” said Kamal.
Yu pointed out that considering the broader picture, a prolonged tariff war sets a dangerous trend that transcends the current trade conflict to something that could potentially create permanent damage to the commercial relationship between the two countries. “Not only that, but it could also impact all organizations and entities in between, which wouldn’t necessarily rely on both these markets in terms of being able to source particular goods,” said Yu.
Ultimately, these costs will trickle down through supply chains and will hit end consumers. “There might be markups and higher consumer prices that are being put out by businesses that will have to be taken up by the consumers,” said Yu. This is likely more true for niche industries – raw materials might be harder to source across several countries, forcing companies to remain rooted to specific locations and thus be susceptible to tariffs and other macroeconomic factors that govern global trade.