US-China Trade War: One Good Outcome

Last Friday, as reported by CNBC, “the Chinese State Council said it decided to slap tariffs ranging from 5% to 10% on $75 billion U.S. goods in two batches effective on Sep. 1 and Dec. 15. It also said a 25% tariff will be imposed on U.S. cars and a 5% on auto parts and components, which will go into effect on Dec. 15.”

Of course, this is in retaliation for the new tariffs the US plans to impose on Chinese imports starting on September 1. 

On Saturday, in response to China’s announcement, President Trump tweeted that on “October 1, [existing] tariffs on $250 billion [of Chinese products] will rise from 25% to 30%. Tariffs planned for September 1 on $300 billion worth of Chinese goods will now be 15% instead of 10%.”

Not surprising, the Dow Jones industrial average lost more than 600 points on Friday.

Coincidently, our Indago survey last week focused on the impact the US-China trade dispute is having on supply chain costs. 20% of our member respondents said costs have increased substantially, with another 60% saying costs have increased moderately.

This coincides with many of the headlines we’re seeing, like Caterpillar reporting that it paid $70 million in tariffs in the second quarter of 2019 and expects to pay $250 million to $350 million in tariffs for the year (this was before the latest tariff increases).

So, has any good come from this escalating trade war between the US and China?

We found one positive outcome, as shared by one of our Indago members, a supply chain executive from a $1B+ manufacturer:

“It has brought international trade compliance into the limelight and I find myself talking to executives that I have never spoken to before. It has given me opportunities to educate leadership concerning international trade and to communicate other risks as well. I overhear people at lunch discussing the Section 301 tariffs and I take advantage of those informal opportunities to correct misconceptions, raise awareness of trade risk and show them how international trade impacts their position within the company. It’s a great time to be in international trade compliance.”

This is in stark contrast to what I heard years ago from a VP of Customs Compliance at a large pharmaceutical company. In a think tank I conducted with supply chain executives, she shared her frustration with the group: 

“You would never hire someone off the street to manage your finance operations. But that’s exactly what we do to manage our global trade operations. It’s just viewed as paperwork at our company.”

As I wrote last Friday, there is only one thing companies can bet on in the months ahead when it comes to trade and tariffs: more risk and uncertainty.

And if your company still views trade compliance as just paperwork, you’re setting yourself up for failure.

For a related commentary, please see “Trade Compliance: Still Think It’s Just Paperwork?