With the US-China trade war showing no sign of abating any time soon – despite the temporary hold put on the imposition of new tariffs – there are signs the punitive regime initiated by Donald Trump, the US President, may be causing as many problems for domestic businesses as for their mainland counterparts. Indeed, the US business community is becoming increasingly vocal when it comes to raising its concern that the tariffs are creating far more challenges than opportunities.
In October 2018, American businesses paid more than US$5.6 billion in tariffs, a 70% year-on-year increase according to data released by Tariffs Hurt the Heartland, a coalition of 80 US-based trade associations concerned that the trade war is undermining each of their business sectors. The scale of the problem was highlighted in September, when trade figures showed that exports of all US products subject to retaliatory tariffs had declined 26% year-on-year. As this represents a $2.5 billion drop in value terms, its severe impact on US exporters has proven immediately apparent.
Among all the industries opposed to the tariffs, the consumer-technology sector is proving one of the most militant. Very much in the eye of this particular storm is Gary Shapiro, President of the Consumer Technology Association (CTA), the Virginia-based trade body that represents some 2,200 US technology businesses.
He believes that not only are the tariffs impacting on the export of many consumer-electronic items, but also constitute a tax on the Internet of Things for all Americans. As a consequence, he sees their continued imposition as sure to slow the move towards 5G and cloud computing, with many of the required components – including gateways, modems, routers and a number of other essential internet infrastructure systems – sure to be subject to substantial price rises.
Outlining the scale of the problem, he said: "Simply put, these tariffs will make going online more expensive for everyone. Taxing network equipment and other vital components used in 5G technology will raise the cost of US networking infrastructure by hundreds of millions of dollars, while removing any incentives to improve it."
Since the 6 July imposition of the tariffs, the tech industry has paid $349 million – a 195% year-on-year increase – for mainland-originated items. With printed circuit assays (PCAs) – an essential component in many electrical appliances – also subject to tariffs, the CTA estimates that any American manufacturer that relies on imported Chinese PCAs will cut their orders by 6-12% as the imported unit cost increases by 9-23%.
While a number of electronics companies are looking to make alternative arrangements, many of these are turning out to be prohibitively costly. Reflecting on his own experience of trying to find a workaround, Aaron Emigh, Chief Executive of Brilliant, a California-based specialist in smart home control devices, said: "It would cost approximately a million dollars and take many months to relocate manufacturing outside China.
"Such a cost and such a timeline is just not practical for businesses such as ours – small startups with modest resources. Essentially, the proposed tariffs amount to a punitive tax on the sale of US technology, manufactured by a US company, to the domestic market."
Beyond the high-tech sector, apparel and footwear companies – many of them adversely affected by the tariffs on fibre, leather and certain accessories – are also scrambling to find new manufacturing partners. Expressing the strong sentiment that currently characterise the sector, Stephen Lamar, Executive Vice-president of the Washington-headquartered American Apparel & Footwear Association, said: "We are on the cusp of the biggest sourcing disruption we have seen in a generation. The number-one thing I hear from companies is: 'For years we have been talking about diversifying from China and now we actually have to do it'."
Typical of the sector is Los Angeles-based YMI Jeanswear, which currently relies on China for 60% of its denim / non-denim pants, with the remainder produced in Vietnam from China-sourced fabric. Outlining the options open to him, company president David Vered said: "When it comes to being able to provide everything – including raw materials – China is really good. If further tariffs come into play, however, we will have no option but to move more production to Vietnam."
With the general expectation being that the tariff level will soon be raised to 25%, many clothing businesses have looked to dodge increased costs by bringing their shipping dates forward. As a consequence, the level of US-bound China-sourced apparel exports rose for three consecutive months throughout the autumn, according to the latest figures from the US Commerce Department's Office of Textiles and Apparel.
Acknowledging this shift in importer behaviour, Ben Hackett, founder of Hackett Associates, a Washington-headquartered specialist logistics consultancy, said: "President Trump's trade war with China – and the threat of even higher tariffs in 2019 – has created a mini-import boom, with many businesses rushing to bring goods into the country ahead of any new tariffs. Above all, though, it's clear we are now in a very politically motivated trade environment."
Among the less conspicuous casualties of the escalating trade war is the US cycle industry, with manufacturers now obliged to drastically rethink their business models as bicycle components fall within the scope of the tariffs. So severe has the impact already been on the sector that one of its major trade events – the annual Interbike show – has already been cancelled for 2019.
Citing the tariffs as one of the key contributory factors, the Emerald Expositions' Sports Group, the company behind the show, has also initiated mass redundancies and announced that it is "researching alternative plans for 2020". As yet, there is no news as to when (or if) the 37-year-old expo will once again take place.
Explaining the radical shake-up of the business, Executive Vice-president Darrell Denny said: "The substantial increase in tariffs on bike-related imports during 2018, as well as those announced for 2019, has compounded the challenges we face. As a result, we are rethinking how we can best serve the cycling industry and are conducting a review of the possible timing, locations and formats of future events with dealers, brands, distributors, reps, designers and the media."
Perhaps summing up the irony of the situation, given the disastrous consequences for a number of US businesses, including Emerald Exposition, Arnold Kamler, Chief Executive of Kent International, a New Jersey-based importer and distributor of bikes and cycling accessories, said: "As a consequence of the tariffs, we have had to shift much of our production from China to a new facility in Cambodia. The sad thing is that this trade dispute is not going to bring jobs back to America. Instead, it is just going to redistribute jobs across different parts of Southeast Asia."