The latest series of escalations in the trade war between the U.S. and China likely means a rocky fall and winter for U.S. auto, consumer, chemicals and footwear producers who face rampant uncertainty as the main targets of a new round of tariffs.
Events developed rapidly starting on Aug. 1, when the Trump administration announced that it would impose long-threatened 10% tariffs on $300 billion of Chinese goods, starting on Sept. 1. There was a change of heart Aug. 13, when the U.S. said it was delaying tariffs on some of those products to Dec. 15 to allow U.S. shoppers to buy Christmas gifts before prices went up.
That was met 10 days later with retaliatory measures from China, which set levies of 5% to 10% on $75 billion of U.S. goods, also beginning Sept. 1 and Dec. 15., and reimposed tariffs of 25% on U.S. autos and 5% on auto parts that it suspended earlier in 2019. The same day, Trump tweeted that the tax on $300 billion of Chinese imports would be increased to 15%, something that was confirmed by the United States Trade Representative's office on Aug. 28. Existing 25% tariffs on a separate $250 billion of Chinese goods are due to rise to 30% from Oct. 1.
The worst-hit companies are likely to be in the U.S. auto industry, including Ford Motor Co. and Tesla Inc., according to the Peterson Institute for International Economics, a Washington-based economics think tank.
The U.S. sent 163,618 vehicles valued at $9.4 billion to China in 2018, making it the fifth-largest export, according to data from the U.S. Trade Representative and the International Trade Administration. However, the number of vehicles has declined each year since 2014, when 314,580 were shipped.
The average Chinese tariff on U.S. cars will rise to 42.6% from its current 12.6% rate beginning in mid-December, and some auto products could face as much as a 35-percentage-point increase in price, according to Chad Bown, a senior fellow at the Peterson Institute.
Beyond autos, an already reeling U.S. soybean market ravaged as a casualty of the trade war faces additional tariffs, a move that comes after Beijing banned U.S. imports. China, at $9.3 billion in purchases, was the fourth-largest agricultural market for the U.S. last year.
U.S. petroleum, a $3.2 billion a year export industry to China, will face increased tariffs beginning September 1, and chemicals, valued at $1.1 billion, will face the December imposition of additional tariffs.
However, U.S. aircraft, semiconductors and pharmaceutical products are untouched by China, which represent nearly $28 billion in annual exports.
It cuts both ways for U.S. industries: Not only are many American companies targeted directly by Chinese retaliatory tariffs but also by U.S. tariffs on goods imported from China, a major hub of production for many sectors.
According to Americans for Free Trade, an anti-tariff swath of businesses and trade groups, 92% of apparel products, 52.5% of footwear and 68.4% of textile products will be subject to additional tariffs beginning September 1.
Sink or swim
Donald Trump's actions will affect nearly everything Americans purchase from China. Peterson Institute's Bown estimates that 96.8% of U.S. imports from the world's second-biggest economy will be subject to tariffs after mid-December.
For footwear, it could be sink or swim.
A coalition of more than 200 footwear companies including adidas AG, NIKE Inc. and Under Armour Inc. penned a letter August 28 to the president urging him to rethink the September 1 imposition of additional 15% tariffs on the majority of shoes.
"Brands have already said tariffs will dent job growth and shoe stores are saying it's a job killer," says Matt Priest, the Footwear Distributors and Retailers of America's president and CEO.
During Trump's Aug. 23 Twitter tirade against China, he also ordered U.S. companies to "immediately start looking for an alternative to China," though many sectors, including those with well-developed, intricate supply chains dependent on the highly skilled Chinese workforce, argue they do not have a viable alternative.
Hurting confidence
Trade has already been hit hard by the ongoing conflict.
U.S. exports to China fell 16.8% year over year in June, while U.S. imports from China fell 12.6% year over year over that span, according to Panjiva.
Looking strictly at products impacted by the first $250 billion worth of tranches of tariffs imposed by the Trump administration, U.S. imports fell by 34.1% year over year in June, or by $7.70 billion, according to Panjiva. Beijing also imported $1.33 billion, or 16.1% less of tariff-affected products year over year in June.
Uncertainty around trade policy is also making it hard for companies to make long-term decisions, according to Simon Lester, the associate director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute in Washington.
"I don't know that I see a trade deal coming anytime soon," Lester said in an interview. "We may just have to live with the tariffs for a while. Perhaps Trump will rethink it all if the stock market or economy tanks."
U.S. and Chinese counterparts were originally slated to hold talks in early September, though the status of those high-level meetings is still uncertain. USTR did not return a request for comment on if and when those talks may be held.
S&P Global Ratings believes that the latest moves have shaken investor confidence and "incrementally worsened" the global business economic outlook. The rating agency added that the latest developments raise the risk that the conflict could spill over into services, an area where the U.S. enjoys a $41 billion surplus with Beijing.
- Author
- Evan Fallor
- Theme
- EnergyRetail & Consumer Products
