Preparing for the China-U.S. Trade War

Tariffs ignite tension in the manufacturing industry. Here are some steps to take to offset the expense of new import/export duties.

Preparing for the China-U.S. Trade War
Preparing for the China-U.S. Trade War

Is all fair in a trade war? When it comes to machine building and manufacturing, we are about to find out, as new tariffs and negotiations continue between the U.S. and China.

The China-United States trade war “unofficially” started on July 6, 2018, when the Trump Administration imposed 25 percent tariffs on more than 800 Chinese products, ranging from industrial machinery to medical devices to auto parts and components, which collectively, are worth about $34 billion. That action led to a reaction from China, which responded with similar tariffs—ranging from 5 to 25 percent—on U.S. exports.  From there, it escalated.

In August, the office of the U.S. Trade Representative (USTR) published a second list of approximately $16 billion worth of Chinese imports that will be subject to a 25 percent additional tariff as of August 23, 2018, and a third list targeting $200 billion that will be subject to a 25 percent additional tariff as early as mid-September. In these actions, the USTR cites the need to protect national security and the intellectual property (IP) of American businesses, as well as to help reduce the U.S. trade deficit with China.

This all began in March 2018 when USTR released the findings of its exhaustive investigation of Section 301 of the Trade Act of 1974, that found China’s acts, policies and practices related to technology transfer, IP and innovation, to be unreasonable and discriminatory and burden U.S. commerce.

Specifically, the Section 301 investigation revealed:

  • China uses joint venture requirements, foreign investment restrictions and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.
  • China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.
  • China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.
  • China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.

“The Trump Administration continues to urge China to stop its unfair practices, open its market and engage in true market competition,” said U.S. Trade Representative Robert Lighthizer, in a statement. “We have been very clear about the specific changes China should undertake.  Regrettably, instead of changing its harmful behavior, China has illegally retaliated against U.S. workers, farmers, ranchers and businesses.”

Essentially, the tariffs are being used as leverage to force China into compliance of fair trade. But the question remains: Is this fair to U.S. manufacturers?

Targeting food processing and packaging machinery

According to TradeMoves, an international trade and customs advisory firm, right now, there is a risk to manufacturers’ supply chain and to their bottom line.