TN-China Network hosted a Chinese Business Experts Roundtable in Nashville April 5th, 2018. Normally, this type of event would center around advice on trademarks needed when selling goods, options to finance imports and how to build relationships across cultural divides. This session, however, was all about “trade wars” or at least the trade skirmish the US has started with China.
Attorney, John Scannapieco of Baker Donelson used a great analogy to relay his opinion. He believes we aren’t in a trade war (yet). He is of the mind that the first blow, swung by the President is a “punch in the nose” to get attention. His hope is that the strike was dramatic for effect; but looks for the dust to settle, at which point everyone may come back to the table with more reasonable offers and demands.
Tom Forsythe of Kyzen used another analogy I connected well with. He said, “whenever someone appears to have the world by the tail, someone else comes along and does something really unkind”. Like punch them in the nose, perhaps?
Tom added in a follow-up communication that he does not see China as a victim in this trade dispute. Paraphrased, he is of the mind that much benefit could be gained from ‘adjusting’ the status quo but neither the approach nor the response has been altogether kind. I could hardly agree more.
Andrew Wilson, former Director of US Operations with Intrepid Sourcing shared a recent statistic that over fifty percent of the factories in China are small to medium enterprises (SMEs). Many of which would not survive the “massive disruptions” from a full-blown trade war between the U.S. and China due to thin margins that many operate on.
In a follow-up communication, he added the Chinese central government may provide various subsidies to aid the SME’s in surviving the crisis. In a short list of potential assistance options, ‘keeping people employed’ was the most important. He noted, “This is the real danger both the Chinese and US political systems face if all goes south”. My fear exactly.
Stateside, many domestic automotive part suppliers aren’t huge companies either. The carmakers may be able to absorb higher tariffs for a time but those who supply the parts may not be as fortunate. Carmakers don’t switch suppliers easily. So, when small suppliers start lagging behind or even failing, supply goes down, demand doesn’t does change and prices go up. Welcome to the trickle effect of heightened tariffs. Who wins in this case? What exactly is it that we are trying to “win”?
There was an array of opinions and theories in the room from ‘concerned, but optimistic’ to someone commenting it’s ‘just no big deal yet’. No big deal seems to be a lackadaisical stance as retaliatory tariffs have already been levied.
I do not claim to be an expert on the details and intricacies of each tariff levied in this battle, but do find myself enthralled with those who are. They understand it, study it and base their livelihoods upon it. Some also freely admit that what you believe depends on which economist you listen to. Note I said economist, not news source. Reporters report what others have said, with added sensationalism and buzzwords. Economists study markets, trade and regulatory issues affecting the economy. They’re the best source of information in this arena.
Trade with China likely does need correction and rebalancing. What they obviously aren’t taking kindly to… is being bullied into negotiations. Shame on this administration for seemingly believing they could. China is a sophisticated and savvy trade partner, from whom we still have much to learn in the way of innovation.
So who really wins in a trade war? It is business and business must be win-win. If it’s always You Lose, I Win…. someone is going to take their ball and go home! Then we all lose, everyone. Especially those folks making their living working for a company that uses steel (and a growing list of other common products). Reportedly, there are seventeen million jobs in the U.S. that rely on steel or aluminum in some way. With recent Section 232 tariffs, many of those could be in jeopardy. From my point of view, we don’t know who wins the war, but the casualties are employment and cost of goods.
We’ve all heard the cliche “pick your battles”. Some wars need to be fought, but surely there are better ways to fight. This battlefield is the thriving economy of two countries. Is this really the right place and the right weaponry?
What can you do as an importer or business that will be impacted? This article from Arent Fox details the comment process for Section 301 tariffs well.
This article is presented as editorial, written by Stephanie Fields – Director of Special Projects for Indigo Trade Solutions LLC