US-China trade war: American importers fret as progress stalls on lifting Trump-era tariffs

  • Some American companies that rely on China for manufacturing have given up hope of Trump-era tariffs being lifted this year
  • Trade talks between the world’s two biggest economies have stalled, despite the recent expiry of the phase-one deal signed in 2020

They might live thousands of kilometres apart, but American businessmen Dan Digre and Ben Zhang are united in their irritation with tariffs on Chinese imports.

Digre, the CEO of Minnesota-based speaker manufacturer Misco Speakers, has grown so sick of paying taxes on imports of Chinese audio components he has enlisted the help of a lawyer to argue for an exemption.

On the other side of the country in Seattle, Zhang, the founder of direct manufacturing company Greater Pacific Industries, has tried shifting production to Vietnam to evade the extra duties. He has also decided to sue the government.

The two men’s efforts underline the lengths American firms are going to in order to save their businesses from trade war tariffs that show no signs of being lifted.

President Joe Biden has said he is not prepared to drop the Trump-era tariffs because China has not lived up to its purchasing agreements under the phase-one trade deal.

The US government will release its 2021 trade data on Tuesday, which analysts expect will show China is still lagging behind in purchases of US farm and manufactured goods, energy and services.

Trade talks between the world’s two biggest economies have stalled, despite the recent expiry of the trade deal that was signed two years ago.

As a result, many American companies that rely on China for manufacturing have given up hope of a government-led resolution to the trade conflict any time soon.

“They do not want to be soft on China. Politically it’s not a good move,” said Digre, adding there is bipartisan support for the tariffs and he did not think they would be lifted this year.

Digre has been paying a 25 per cent tariff on most of the audio components he imports for about three years.

But with input costs rising, especially with inflation at its highest level in decades, he has hired a lawyer to request an exclusion for his business under the Harmonised Tariff Schedule (HTS).

China is the global capital of loudspeaker components because it has the lion’s share of magnets.

After the US imposed import tariffs, some companies began carrying out final assembly in the Philippines and Vietnam. But doing it in the US is not feasible due to high costs, Digre said.

Companies also know it is a struggle to find enough workers in the US to take low-end and intensive manufacturing jobs.

Zhang has also been hit with 25 per cent tariffs on many of the items he sources for companies like Microsoft and Google to give to their customers and staff. As his costs have increased, he has had to raise prices.

“The US importers pay the tariffs,” he said. “We write a cheque to the US Treasury.”

While working on a project with financial services company Capital One over Christmas, Zhang began looking for a way to skirt the tariffs by shifting manufacturing to Vietnam. But he has found the process far from ideal.

“It’s a nightmare,” he said. “Six months already but there still isn’t delivery because of disruptions to supply chains.

“It’s not as developed as China. If it’s made in China, it’s been done for a long time.”

The pandemic forced the factory producing his goods in Ho Chi Minh City to close for two months. When authorities allowed it to open, workers did not want to return and his agent would not return his calls.

Eventually, he had to send a staff member from the US to Vietnam to follow up.

Language barriers have also complicated the manufacturing process.

Part of Zhang’s business is to import products for speciality advertising events, which run on tight deadlines. Meeting the quick turnaround has become almost impossible.

“We have had to turn down a lot of projects because we can’t meet the event dates,” he said.

Zhang has filed a lawsuit against the US government to have certain products he imports excluded from tariffs, but it has not reached court. If he can prove the tariffs are unconstitutional, he hopes to be reimbursed for the extra expenses he has incurred.

A more practical approach could be waiting for a new president that was more willing to engage with China and address manufacturers’ concerns, he said.

The US Trade Representative (USTR) in October requested public feedback on the proposed reinstatement of tariff exclusions on 549 products, after they expired at the end of last year.

Some medical products and smartwatches were among the imports granted exclusions in 2020. But the tariff exclusion often only lasts one year.

According to the US-China Business Council, the main reason US lawmakers do not oppose tariffs is because of an anti-China mood prevailing in Washington, in which the benefits of confrontation outweigh costs to constituents.

The council said exemptions should be broadened if the Biden administration does not want to lift punitive tariffs on Chinese imports.

“Many businesses are frustrated with the [HTS exclusion] application process, as the majority is denied without explanation,” said Douglas Barry, a spokesman for the council. “As security issues are driving priorities in both countries, trade is no longer front and centre.”

Applications are more successful when a company can prove it is creating jobs in the US.

When tariffs were first imposed, some of the extra charges were shared with Chinese exporters. But as the trade dispute has continued, Chinese producers reduced or ended their subsidies. As a result, wholesale and retail prices in the US have increased, contributing to inflation.

Allen Shi, president at the Chinese Manufacturers’ Association of Hong Kong, said American importers were now paying the full cost of tariffs and many exporters in the mainland were no longer concerned about them.

Still, he said the protracted trade dispute was “a lose-lose situation”.

“We look forward to China and America working together,” Shi said. “As businessmen, we do not always want politics affecting business.”

China’s Ministry of Commerce continues to call on the US to abolish tariffs, and some analysts think Beijing will be able to leverage its central position in the global supply chain to exert pressure on Washington.

But not all Americans are as keen to see their government let up pressure on China.

A survey published by the Chicago Council on Global Affairs in December showed 58 per cent of respondents thought trade between the US and China weakened national security, up from 38 per cent two years ago.

Most Americans now view China as an economic threat, about 67 per cent, rather than an economic partner, at just 30 per cent. More broadly, US citizens see China as either a rival or an adversary, the survey found.

When asked about tariffs on products imported from China, the council found that 62 per cent of Americans supported increasing tariffs, up from 55 per cent in 2020.

And nearly as many – 57 per cent – say Washington should significantly reduce trade with China, even if it leads to higher costs for US consumers.

Digre said Trump’s misinformation that China would be paying for the tariffs, rather than US businesses and consumers, has contributed to ongoing support for them.

When Trump announced the tariffs, he insisted that China would be paying the costs. Numerous studies have shown that not to be the case. Though China’s share of US imports in certain sectors have slowed down.

Alexander Hitch, a research associate at The Chicago Council on Global Affairs, said tariff levels could change, but the Biden administration has so far not indicated that will be the case.

“While American public opinion views the US-China trade relationship more negatively than just a few years ago, the perspective of the Biden administration toward trade with China reflects a similar policy focus to that of the Trump administration.

“The administration recently announced the findings of a comprehensive review of the US-China trade relationship, signalling a renewed focus on China’s performance under the phase one trade deal, renewed consultation and coordination with allies and partners to confront non-market economic practices, and a review of Section 301 tariff levels, which could eventually lead to the removal of some tariffs.”

Author: Cheryl Heng, SCMP

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