What A Trade War With China Could Mean For U.S. Manufacturers

Beijing has responded to President Trump's tariffs on roughly $50 billion worth of Chinese goods by increasing tariffs on 128 U.S. products.

trade warManufacturers have been waiting for the next moves since President Trump announced on March 22 tariffs on roughly $50 billion worth of Chinese goods, and Beijing has responded by increasing tariffs by up to 25 percent on 128 U.S. products.

The growing tensions have the potential to put U.S. manufacturers in the middle.

While the Wall Street Journal had released a report that the two countries were quietly negotiating behind closed doors, China announced Monday that it will be imposing a 25 percent tariff on products including U.S. pork and aluminum scrap and 15 percent tariffs on products including sparkling wine, steel pipe and foods including grapes, apples and walnuts.

Meanwhile, the Trump administration is preparing to unveil a list later this week of Chinese tech products that will be targeted for tariffs in retaliation for its technology transfer policies.

It could be a bumpy ride in the coming months as China is an important market for U.S. manufacturers. The new tariff announcements from Beijing reinforce a Chinese embassy statement released on March 23 that said it is “not afraid of and will not recoil from a trade war.” It said that the country is capable of facing any challenge and that if a trade war were initiated by the U.S., it would “fight to the end to defend its own legitimate interested with all necessary measures.”

China is a critical market for many U.S. manufacturers and tariffs on U.S. imports there would almost certainly impact demand. Apple earned more than 20 percent of its total sales from China in the most recent quarter. Other companies with a big presence in the Chinese market include Texas Instruments, Intel, 3M, Qualcomm and Nike.

“While China may negotiate, some analysts aren’t sure the country may be able to concede on all demands..”

Boeing announced a $37 billion order for 300 planes from China last year and said in a forecast in September that the country will buy as much as $1 trillion worth of aircraft in the next two decades. Boeing CEO Dennis Muilenburg told CNBC in mid-February that he wanted a “balanced approach to China.” “We need fair trade, fair competition. But as you look at the China market from an airplane standpoint…those 41,000 new airplanes, more than 7,000 are in China. It’s becoming the world’s biggest airplane market,” Muilenburg said.

More than two dozen American brands also wrote a letter to the president on March 19 expressing concern about the negative impacts from the Section 301 of the Trade Act. It said that if the investigation were to result in broadly applied tariff on imports from China, it would tax American families with higher prices on household basic such as clothing, shoes, home goods and electronics. Another letter from the Footwear Distributors and Retailers of America echoed similar sentiments.

Treasury Secretary Steven Mnuchin said in an interview with Fox News that the administration is not afraid of a trade war although “that’s not our objective.” Mnuchin said the U.S. will proceed with tariffs and investment restrictions while also negotiating to try to reach an agreement with the Chinese.

One thing the U.S. wants is for China to eliminate rules that require foreign companies to set up joint ventures with Chinese firms. An even bigger concern is intellectual property theft which was identified as the main reason for the tariffs.

While China may negotiate, some analysts aren’t sure the country may be able to concede on all demands. Mark Williams, Chief Asia Economist at Capital Economics said in a note to clients in late-market that while China may be able to reduce the bilateral trade imbalance, it won’t be by $100 billion as Trump has demanded. He also expressed doubt that the Chinese would make substantial changes to its practices on intellectual property as they have been a key element to developing the economy.

It remains to be seen if it would impact U.S. manufacturers that rely on Chinese supply imports, because many of those are already going to other countries such as India and Vietnam. Bloomberg noted that a wider U.S. China trade war could accelerate the transition as U.S. Companies that relay in Chinese imports would have to redesign their supply chains around the tariffs. “Multinationals and their suppliers would look for alternative facilities outside China, some would probably decamp from the mainland altogether for cheaper climes,” Bloomberg said.

Jay Timmons, President and CEO of the National Association of Manufacturers, said in a statement that while China’s unfair practices remain a threat to U.S. manufacturers’ competitiveness, any actions must be “well crafted.” Tariffs run the risk of providing China to take further destructive actions against American manufacturing, Timmons said. “The only way we’ll truly make lasting progress is through a strategic approach that uses both carrots and sticks to accelerate changes to Chinese policies,” Timmons said.


MORE LIKE THIS

  • Get the CEO Briefing

    Sign up today to get weekly access to the latest issues affecting CEOs in every industry
  • upcoming events

    Roundtable

    Strategic Planning Workshop

    1:00 - 5:00 pm

    We are in a period of rapid change. Customer needs, technologies, competitors and internal capabilities require companies to review and update their strategies for the new realities. In this workshop, strategy experts Steve Rutan and Denise Harrison will show you a systematic approach to strategic planning to help you refine or redefine your business strategy and approach including:

    • Learn what you need to know to develop an effective strategic plan. Put the right players on the strategic planning team.
    • Develop strategies that leverage your company’s unique position in the marketplace. Lift your management team beyond “business as usual” thought processes and activities.
    • Translate your strategies into action. Achieve your vision for success and generate superior financial results.
    • Identify exactly what you need to do now to position your company for future success.

    To sign up, select this option in your registration form. Additional fee of $695 will be added to your total.

    New York, NY: ​​​Chief Executive's Corporate Citizenship Awards 2017

    Women in Leadership Seminar and Peer Discussion

    2:00 - 5:00 pm

    Female leaders face the same issues all leaders do, but they often face additional challenges too. In this peer session, we will facilitate a discussion of best practices and how to overcome common barriers to help women leaders be more effective within and outside their organizations. 

    Limited space available.

    To sign up, select this option in your registration form. Additional fee of $495 will be added to your total.

    Golf Outing

    10:30 - 5:00 pm
    General’s Retreat at Hermitage Golf Course
    Sponsored by UBS

    General’s Retreat, built in 1986 with architect Gary Roger Baird, has been voted the “Best Golf Course in Nashville” and is a “must play” when visiting the Nashville, Tennessee area. With the beautiful setting along the Cumberland River, golfers of all capabilities will thoroughly enjoy the golf, scenery and hospitality.

    The golf outing fee includes transportation to and from the hotel, greens/cart fees, use of practice facilities, and boxed lunch. The bus will leave the hotel at 10:30 am for a noon shotgun start and return to the hotel after the cocktail reception following the completion of the round.

    To sign up, select this option in your registration form. Additional fee of $295 will be added to your total.