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Tariff troubles knock confidence of U.S. businesses in China

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Trade war tariffs are hurting the competitiveness U.S. businesses working in China, according to the American Chamber of Commerce in China (AmCham China). Tariff troubles increased over the weekend as the latest round of Chinese tariffs on $60 billion of U.S. goods began on Saturday, June 1.

AmCham China surveyed its membership of more than 3,300 individual members from 900 companies working in China.

Negative impacts

The tariffs are having a “negative” impact, the Chamber reported, with 74.9 percent of respondents stating that the increases in U.S. tariffs are having an adverse impact. Approximately 37.7 percent of respondents said that the U.S. tariffs are having a “strong” negative impact and 37.2 percent said that they are having a “slight” negative impact.

Chinese tariffs, ranging between 5 percent and 25 percent on $60 billion of U.S. goods are having a marginally greater effect. About 32.6 percent of respondents said that the newest Chinese tariffs are having a “strong” negative impact while 42.3 percent said that they are having a “slight” negative impact.

The main effect of the combined tariffs will be to decrease demand for products, said 52.1 percent of respondents. Other likely outcomes include increases in the costs of manufacturing (42.4 percent of respondents); an increase in the sale price of products (38.2 percent); a slight reduction in profit (34.0 percent); or a significant reduction in profit (27.3 percent).

Likely reactions

The main response by AmCham members (35.3 percent of responses) is likely to be a restructuring of operations so as to localize manufacturing and sourcing within China to serve the Chinese market.

“Such [a] strategy constitutes a rational choice for many companies to insulate themselves from the effects of tariffs while maintaining their ability to pursue domestic market opportunities,” AmCham China said.

Other favored responses include delaying or canceling investment decisions (33.2 percent) or avoiding tariffs by adjusting supply chain to source or assemble from outside the U.S. (25.2 percent) or China (22.7 percent).

Just under 20 percent of respondents are thinking about relocating some or all manufacturing out of China.

About 13.9 percent of respondents believed they would reduce headcount.

AmCham China surveyed its members and received “nearly” 250 responses. Just under 62 percent of respondents were in manufacturing-related industries; just under 26 percent were in services; just under 4 percent were in retail and distribution and about 10 percent were in “other” sectors.

Impacts outside of China and the U.S.

It appears that the fall-out from the China-U.S. trade dispute is having an adverse impact elsewhere.

The European Chamber in China produces a “Business Confidence Survey” each year. As it happens, this year’s survey coincided with the imposition of tariffs in early-to-mid May. The European Chamber was able to complete a short survey of its members on the matter as part of its annual business survey. The key finding is that the China-U.S. trade dispute is not the opportunity for European businesses that many had hoped for.

“In an increasingly interconnected world, European companies with international supply chains have also found themselves affected: over one-third of respondents said they were negatively affected by tariffs from both sides, contrary to expectations that European companies would benefit,” the European Chamber said.

The European Chamber received 585 responses to the question of what kind of impact the tariffs on goods were having on members.

Of the respondents producing goods in China, 4 percent said tariffs on goods were having a positive effect; 57 percent said they were having no effect; and 38 percent said they were having a negative impact.

Of the respondents producing goods in the U.S., about 5 percent said that the effects were positive; 63 percent said there was no effect; and 31 percent reported negative impacts.

“The majority are unaffected by tariffs on goods produced in the U.S. and other markets – a reminder that many European companies are in China to serve the domestic market rather than for export. Most European companies have not changed their business strategy as a result of the US-China trade war, but continue to monitor the situation closely. The conflict is likely to continue having minimal direct impact on members. The most damaging consequence will be the effect on sentiment, which will increasingly hamper business decisions,” the European Chamber said.

China’s response

China’s Ministry of Commerce has recently responded to both sets of surveys.

In answering a question from a reporter, a Ministry of Commerce spokesperson noted that 81.5 percent of the manufacturing companies in the AmCham survey felt the negative impact of the U.S. tariff increase.

The spokesperson commented that the impact on manufacturing companies showed that trade friction harms the interests of both Chinese and U.S. companies.

“This shows from one side that in today’s economic globalization, the U.S. side unilaterally upgrades trade frictions, which not only harms the interests of Chinese enterprises, but also seriously damages the interests of the U.S.

“I want to stress once again that the legitimate rights and interests of all foreign-funded enterprises in China, including U.S.-funded enterprises, will be protected by the Chinese government,” the spokesperson said.

Commenting on the European Chamber survey, the Ministry of Commerce spokesperson was bullish. He noted that 62 percent of companies surveyed in the European Chamber Survey regard China as a top investment destination both now and in the future. He also noted that the European Chamber survey said that 56 percent of businesses surveyed are considering expanding their China business.

“This proves once again that even in the case of the United States imposing tariffs on Chinese products, the enthusiasm of foreign businessmen to invest in China is still unabated,” the spokesperson told reporters.