Trump China Tariffs Are Far From Just a Threat, Experts at Sourcing Summit Hong Kong Say

Date: Thursday, May 9, 2019
Source: Sourcing Journal

President Trump’s tariff tweets may be more than just a negotiating tactic. U.S. Customs and Border Protection is already prepared to start collecting the 25 percent tariffs Friday.

Speaking at Sourcing Summit: Hong Kong Wednesday, experts addressing the tweets heard ‘round the world Sunday—when the U.S. president said he’d raise tariffs on $200 billion worth of goods from 10 percent to 25 percent by week’s end—said what the world wanted to be a bluff, could get very real in a matter of days.

The official mention of the tariff change was made Wednesday in the Federal Register, which is where the policy needs to be announced in order to implement a measure like this, and Customs has already adjusted its website to reflect the tariff rate change.

“U.S. Customs, everyone knows, they’re not quick to do anything. They need time to act,” said Sally Peng, member and Asia Pacific Practice leader for trade law firm Sandler, Travis & Rosenberg. “They were told to do that update, so it’s much more real than we originally thought.”

The statement by the Office of the United States Trade Representative in the Federal Register said, “In the most recent negotiations, China has chosen to retreat from specific commitments agreed to in earlier rounds. In light of the lack of progress in discussions with China, the president has directed the Trade Representative to increase the rate of additional duty to 25 percent.”

Goods targeted in list three, which the increase to a 25 percent tariff will affect, include travel goods, hats, yarns, fabrics and hangers. Finished goods have gone largely unscathed thus far, though any new tariffs could change that.

The next round of negotiations will continue in Washington, D.C. Thursday and Friday, and even if talks were to get back on track after Trump’s Sunday play, there’d be little, if any, time to walk back the rate change before it takes effect.

It would have to be speed-dating, of sorts, Peng said, with the negotiating teams quickly hashing out all of their differences and then calling on Customs to revert to the previous 10 percent tariff.

“It’s going to be quite logistically difficult to do so,” Peng said.

In short, importers should be prepared to face the 25 percent tariffs in two days.

And as Newtimes Development CEO Paul Walsh said, that tariff rate could really rock the boat for an industry already struggling to steady itself amid a changing tide.

“If it’s a 10 percent tariff, I think there’s a big consensus that retailers and vendors can manage it. With the currency exchanges kind of squeezing margins, a 10 percent tariff can be manageable,” Walsh said. “I think with 25 percent, that’s a real game changer, and I think then we’d definitely see much mass emigration out of China.”

What’s more, while the $325 billion worth of additional tariffs on imports from China hasn’t been made official, it hasn’t been taken off the table either. And with just four major categories of goods left to tariff—computers, phones, apparel and footwear—it wouldn’t be a palatable change for the apparel industry.

“If these are really also going to become 25 percent, or 10 percent for that matter, it’s going to impact the entire supply chain,” Peng said. “It’s a real issue and maybe some of you only deal with big companies, but for the SMEs outside our industries, they’re just not having orders for some time….It really is putting people out of business [almost] immediately.”

For Walsh, and the clients Newtimes works with as a sourcing and supply chain management firm, it’s the suddenness of the trade policy changes that is hardest for the sector to stomach.

“If Trump really wants to introduce additional tariffs, there should at least be a breathing space for companies to really prepare and think and have a chance to plan around it,” Walsh said. “I think the toughest aspect will be if the tariffs are applied in a matter of weeks or days.”

As for how things are expected to go this week, it seems China—though still trying to determine its next best play—will still send its top negotiator Vice-Premier Liu He to Washington to continue the negotiations toward a trade deal.

Whether, or when, the U.S. and China might come to an agreement on how to work together on trade, there’s little telling.

Looking at where trade negotiations are presently, Walsh said China is in a “much stronger” position than it has been in the past.

“I think [China has] really transitioned from manufacturing to an innovation type of economy, and so I think China is dealing with a stronger position of strength, it’s a more equal kind of negotiation,” Walsh explained. “I think that probably 80 percent of the negotiations between the U.S. and China find a way to resolve.”

 

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