US formally begins process for tariffs on $300B

Dive Brief:

  • The Office of the U.S. Trade Representative (USTR) has released a proposed list of Chinese imports to face tariffs up to 25%. The 136-page listof products represents $300 billion in value.
  • The list includes a wide range of products affecting nearly every industry. Excluded from the list are pharmaceuticals, some medical goods and rare earth minerals. “Product exclusions granted by the Trade Representative on prior tranches from this investigation will not be affected,” according to the document.
  • USTR will seek public comments on the product list and will hold a public hearing on June 17. Comments can be submitted up to seven days after the hearing. As a result, the earliest date the tariffs can take effect is June 24.

Dive Insight:

The release of this list from USTR formally begins the process for implementing tariffs on nearly every remaining untaxed good imported from China.

The list includes raw materials and finished goods across dozens of industries, touching nearly every U.S. business — and in turn, every consumer —in some way. The products could face duties up to 25%, according to the document.

Matthew Shay, president and CEO of the National Retail Federation, called the proposed fourth round of tariffs “far too great a gamble for the U.S. economy.” An estimate from the Trade Partnership found GDP could fall by 1% with 25% tariffs on $300 billion worth of Chinese imports and retaliatory tariffs from China in place.

Despite USTR initiating the process for the fourth tranche of tariffs, Donald Trump appeared to waffle on the implementation of the tariffs.

“We have another $325 billion that we can do, if we decided to do it,” he said Monday, as cited in The Wall Street Journal, but added “I have not made that decision yet.”

Over the past several days, Trump has taken to Twitter to advise businesses to shift their supply chains to avoid tariffs. “Make your product at home in the USA and there is no Tariff. You can also buy from a non-Tariffed country instead of China,” he tweeted Tuesday morning.

Shifting sourcing to another country is seldom a change a business can make in a matter of weeks. Products manufactured in the U.S. are not automatically exempted from tariffs, as they likely include parts sourced globally. In addition, products manufactured in the U.S. and exported to China face retaliatory tariffs.

14 May 2019 | Shefali Kapadia | Supply Chain Dive

Trade war escalates: China, US to raise tariffs

Dive Brief:

  • In response to a tariff hike on $200 billion worth of Chinese imports, China will raise the tariff rate on $60 billion worth of U.S. imports beginning June 1, according to a Monday morning announcement from Chinese Ministry of Finance.
  • The $60 billion of goods currently face a tariff of 5% or 10%. The tariff rate on about 2,500 products will rise to 25%, and the rate on another 1,078 products will rise to 20%. 974 items will face a tariff rate of 10%, and 595 goods will be taxed at 5%.
  • In a separate announcement Friday evening, the U.S. Trade Representative Robert Lighthizer said in a statement his office will “begin the process” of putting tariffs on all Chinese imports that remain untaxed. These goods are valued around $300 billion. The fourth round of tariffs requires a 60-day public comment period before implementation.

Dive Insight:

The escalating trade war between the U.S. and China will require import and export supply chains to plan accordingly for a shift in costs, supply and demand.

On the export side, China’s list of products that would face 25% tariffs includes animal and food products, minerals, fibers, machinery, toys and furniture. Although retaliatory tariffs from China have less of an impact on the U.S. economy than U.S. tariffs on Chinese goods, the agriculture industry faces significant risk. Higher duties on animal and food products could make U.S. exports of these goods less appealing to Chinese buyers, creating even higher stockpiles for farmers and lowered prices.

On the import side, implementing tariffs on the remaining $300 billion worth of goods from China would affect nearly every industry that imports anything from China, from a small component to a finished product.

The Trade Partnership estimated tariffs on all remaining imports, plus Chinese retaliation, would decrease GDP growth by 1% and cost the average family of four $2,294 annually.

While many businesses planned for the possibility of a tariff hike to 25% on $200 billion worth of Chinese imports, it’s unlikely companies planned their supply chains around tariffs on another $300 billion worth of goods. “I think companies falsely relaxed a little bit hoping for an agreement,” Maine Pointe CEO Steve Bowen told Supply Chain Dive.

He said many U.S. companies lack optionality, which builds multiple supplier options into the value chain and allows for quick shifts.

In Monday morning tweets, Donald Trump once again suggested businesses shift their sourcing. “The Tariffs can be … completely avoided if you by from a non-Tariffed Country, or you buy the product inside the USA (the best idea). That’s Zero Tariffs,” he wrote in a series of tweets.

Some businesses moved sourcing, in some cases from China to Vietnam, while others found it more cost effective to continue sourcing from China with the 10% tariffs in place.

“As this tariff moves to 25%, the equation will change quite significantly,” Bowen said. China may no longer continue to be the least expensive option. “This will tilt the scale for companies to begin to make many more moves and change the supply base,” Bowen said.

Changing suppliers is certainly not a change that happens overnight. Bowen gave the example of a client with about 30 facilities worldwide that has just started a full network optimization study, which would include risk mitigation from tariffs. The study would result in a five- to 10-year long plan. “This kind of shift in supply chain … this is a years-long process,” Bowen said.

Tariffs on $300 billion would require a public comment of at least 60 days, presenting businesses with a two-month buffer period to conduct cost analyses and adjust their supply chains. Anticipation of this fourth round of tariffs could result in another rush to import goods before the levies take effect.

“Call it a couple months, call it three months, I don’t know. Ambassador Lighthizer can detail that,” White House Economic Advisor Larry Kudlow told Chris Wallace on Fox News Sunday, in response to a question of when the tariffs on $300 billion might take effect. “But that will take some time and then of course the president is going to have to make the final decision on that.”

In the interview, Kudlow also said there’s a “strong possibility” Trump and Chinese President Xi Jinping would meet at the G20 summit in Japan in late June. Their last meeting in December at the G20 summit in Buenos Aires, Argentina, resulted in a 90-day cease-fire on the trade war and delayed a planned tariff hike.

13 May 2019 | Shefali Kapadia | Supply Chain Dive

Trump says ‘no rush’ to reach a trade deal as 25% tariffs take effect

UPDATE: May 10, 2019: Trade talks between the U.S. and China ended Friday without a deal, according to multiple news reports. Treasury Secretary Steve Mnuchin told CNBC the discussions were “constructive” but offered no further detail. The administration has not announced if or when the two nations will meet for another round of talks.

Dive Brief:

  • Tariffs on $200 billion worth of imports from China rose from 10% to 25% Friday at 12:01 a.m. ET. China has threatened “necessary countermeasures,”but as of Friday morning it’s unclear what shape the retaliation will take.
  • Goods in transit exported from China before May 10 are not subject to the new tariffs, according to a document in the Federal Register. The 25% duties are “effective with respect to goods (i) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (ii) exported to the United States on or after May 10, 2019,” the document states.
  • The tariffs took effect as trade negotiations between the U.S. and China unfolded. In a series of tweets Friday morning, Donald Trump said the talks continue “in a very congenial manner” but said “there is absolutely no rush” to reach an agreement. Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin met Thursday for trade talks and are expected to resume talks Friday, Reuters reported.

Dive Insight:

Trump offered sage advice to businesses as the tariff rate increased by 15%. “Waivers on some products will be granted, or go to new source!” he tweeted. “Build your products in the United States and there are NO TARIFFS!”

Going to a new source is a strategy a number of businesses have employed, though often that means moving to a supplier base in other parts of Asia rather than the U.S. Either way, a change of this magnitude is rarely a task measured in days or even weeks.

In light of the tariffs, Brooks Running plans to move the majority of its running shoe production from China to Vietnam.

GE Appliances Executive Director of Sourcing Rich Wrightington said the company has considered the possibility of finding new suppliers. He named Eastern Europe and Southeast Asia as “great places to look” and said GE has not found opportunities to move sourcing to the U.S. Wrightington said some existing suppliers have factories in multiple countries, allowing GE to stay with the same supplier but move sourcing out of China.

Moving sourcing is not always the most cost-effective option, though. Last year, a client for Maine Pointe conducted a series of “what-if” tariff scenarios before the 25% tariffs took effect and still found China was the lowest cost option.

Shifting sourcing to other nations in Asia also requires risk mitigation on the buyer’s behalf for issues such as forced or child labor.

No matter what strategy businesses choose to mitigate tariffs, “the increase to 25% will have huge implications for their bottom lines while also likely requiring customers to share the economic burden,” Lori Fox, vice president of customs brokerage services at American Global Logistics, told Supply Chain Dive.

Countermeasures from China won’t have as much of an effect on the overall U.S. economy, but it could be devastating to the U.S. agricultural industry. The American Soybean Association called the rise to 25% the “worst case” for U.S. soybean growers. The sentiment comes in stark contrast to Trump’s series of tweets, in which he touted his trade policies as a boon to farmers.

Trump also said Friday “the process has begun” to place 25% tariffs on another $325 billion worth of Chinese imports, a threat he first made in a pair of tweets Sunday. At that point, nearly every good the U.S. imports from China would face a duty of 25%.

The National Retail Federation noted the possibility of a fourth tranche would result in another rush to import goods, just as U.S. ports saw in the third and fourth quarters of last year, before 25% tariffs were expected to take effect.

In a press release last month, Port of Long Beach Executive Director Mario Cordero said many warehouses on the West Coast are full with inventory that resulted from last year’s tariff rush. Should another import rush happen, storage space may be in short supply for the incoming goods.

10 May 2019 | Shefali Kapadia | Supply Chain Dive

China threatens ‘necessary’ retaliation to tariff hike

Dive Brief:

  • A spokesperson for the Chinese commerce ministry threatened “necessary countermeasures,” according to The Wall Street Journal, after the promised increase in the U.S. tariff rate on $200 billion in Chinese imports from 10% to 25% was published in the Federal Register.
  • The Notice of Modification in the Federal Register states the Office of the U.S. Trade Representative (USTR) will establish a process where businesses may request to be excluded from the tariffs — an option not offered on the list in question when 10% tariffs went into effect in September 2018. “USTR will publish a separate notice describing the product exclusion process, including the procedures for submitting exclusion requests, and an opportunity for interested persons to submit oppositions to a request,” reads the Federal Register.
  • New York Times analysis laid out what retaliation China might take. Possibilities include resuming the import barriers on American soybeans (which were suspended in December with the now-dead truce) and targeting tariffs at imports that could hurt Trump politically. Non-tariff retaliation like delaying imports in ports or slowing down the supply chains of private American companies that rely on Chinese parts to manufacture their products are also possibilities.

Dive Insight:

Negotiations resumed in Washington Thursday and though tensions have certainly flared this week, the fact that talks are going ahead means both sides still see merit in coming to the table.

Economists say retaliatory tariffs from China likely won’t have a significant effect on the U.S. economy, because the U.S. imports much more from China than China imports from the U.S.

Where U.S. businesses are likely to feel the hit of Chinese retaliatory tariffs is in agriculture. Trump’s tweet Sunday sent grain markets to a 42-year-low.

The American Soybean Association (ASA) called the current situation, with tariffs set to increase, the “worst case” for U.S. soybean growers in a press release issued Tuesday. As agricultural exports to China in 2018 dropped nearly 30% year over year, net farm income fell by nearly 10%, according to Newsweek.

“After so many threats and missed deadlines for concluding negotiations, this ongoing uncertainty is unacceptable to U.S. farmers,” Davie Stephens, president of the ASA and a grower himself, said in a statement. “With depressed prices and unsold stocks forecast to double before the 2019 harvest begins in September, we need the China market reopened to U.S. soybean exports within weeks, not months or longer.”

Stephens added soybean farmers have displayed “great patience” with the administration, but that “patience is wearing thin.”

The Ag Economy Barometer, a measure of sentiment in the agriculture industry developed by Purdue University, showed farmer sentiment in April at its lowest point since the trade war began — notably before President Trump’s surprise tweets Sunday announcing the tariff hike.

A key USDA report will be released Friday detailing how much corn and soy is currently in storage around the world.

“It’s hard to see what could come as bullish from this report, which should show ample stocks in plenty of major export countries,” said Jacob Christy, a trader at The Andersons, in a Thursday morning video report. Ample stocks would indicate lower demand for exports and therefore lower prices in yet another hit to U.S. producers.

09 May 2019 | Emma Cosgrove | Supply Chain Dive

Trump: Tariffs on $200B Chinese imports will rise to 25% Friday

UPDATE: May 6, 2019: As of 10 a.m. Monday, USTR had not sent an official notice of tariffs increasing.

Dive Brief:

  • Tariffs on $200 billion worth of imported goods from China will increase from 10% to 25% Friday, May 10, President Donald Trump tweeted Sunday afternoon. The Office of the U.S. Trade Representative (USTR) had not sent an official notice of the tariff increase as of Sunday evening.
  • “The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” Trump tweeted.
  • This week, a large contingent of Chinese officials will meet with U.S. negotiators in Washington, D.C. in what seemed like final end-stage talks before this afternoon. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer met with negotiators in Beijing last week, when Mnuchin described the talk as “productive.” On Friday Trump told reporters in the Oval Office, “We’re getting close to a very historic, monumental deal and if it doesn’t happen, we’ll be fine too, maybe even better,” according to CNN.

Dive Insight:

After the president delayed the previously planned March tariff raiseindefinitely, many businesses settled into the outlook that negotiations between the U.S. and China were going well. Speculations turned to whether the existing 10% tariffs would remain or be dropped when an agreement was reached. Today’s tweets turned those expectations on their heads.

After the president’s tweets, National Retail Federation Senior Vice President for Government Relations David French said, “Tariffs are taxes paid by American businesses and consumers, not by China. A sudden tariff increase with less than a week’s notice would severely disrupt U.S. businesses, especially small companies that have limited resources to mitigate the impact” in a statement emailed to Supply Chain Dive.

It’s unclear what Trump refers to with $325 billion “of additional goods sent to us by China remain untaxed.” The first and second tranche put tariffs on $50 billion worth of imports. The third round placed 10% duties on $200 billion worth of goods from China. Last year, the U.S. imported a total of $539.5 billion in goods from China, according to USTR, indicating only $289.5 billion worth of goods remained untaxed.

06 May 2019 | Emma Cosgrove & Shefali Kapadia | Supply Chain Dive

China Turns Attention to Logistics

China is thinking logistics. To prioritize market growth, improve productivity, and reduce costs, the country plans to build 30 high-tech logistics hubs by 2020. By 2025, China predicts these hubs will include 150 devoted logistics facilities, according to China’s National Development and Reform Commission (NDRC).

Within the 127 cities qualified for the project, China will build inland harbors, cargo ports, airports, service-oriented ports, commerce and trade-oriented ports, and inland border ports.

The primary goal of these logistics hubs is to integrate automation into new ports and smart warehouses, and incorporate unmanned vehicles, robots, and drones into parcel-delivery processes.

Other priorities include providing a solid foundation for e-commerce and enabling express air and high-speed rail logistics, cold-chain processes, and cross-border delivery.

Among the qualified cities:

  • Shenzhen
  • Beijing
  • Tianjin
  • Nanjing
  • Shanghai
  • Guangzho
  • Zhenzhou
  • Foshan Xi’an
  • Fuzhou

17 April 2019 | Inbound Logistics

China is leading the digital reinvention of the supply chain

The automotive industry is undergoing a fundamental change in the way it does business. Global supply chains are being tested to the limit by complications in international trade and the switch to new energy vehicles (NEVs).

However, the revolution in logistics digitalisation is equipping carmakers, suppliers and their service providers with the ability to remain agile and stay ahead of the game. At this year’s Automotive Logistics Global Shanghai conference, delegates heard about how they were adjusting their strategies and adopting state-of-the art technology to do so.

In the 1950s the cargo container transformed the logistics industry. Data is the new container and the digital reinvention of the supply chain is facilitating a significant uptick in trade, according to DP World’s CEO and MD of Asia Pacific, Andrew Hoad (pictured). That data is being generated by a sensor-rich environment. Referring to a recent World Economic Forum (WEF) report, Hoad said that in a decade from now there are forecast to be a trillion sensors fixed to every product being moved, including parts and vehicles, and the logistics assets moving them. All of these will be feeding data into a connected platform that will allow machines to talk to each other. That level of digitalisation will fundamentally change the way the automotive industry does business said Hoad.

For DP World’s 30+ ports around the world, that means fully automated terminals, such as the one in Qiandao. Hoad said that port information networks of some kind had been around for a long time, such as the SPIN network at the port of Southampton, but that digital technology was going to transform international trade into a fully automated process with sensors feeding data to the partners involved.

Hoad went on to say that over the next two years there was going to be a proliferation of sensor technology that would allow the owners of the parts or cargo to get better visibility on their shipments, adding that the IT managing this data would promote greater transparency.

“Ultimately digital for me means you will be able to move a piece of cargo from China to Europe without the intervention of the hand of man,” said Hoad. “The whole thing will be automated and that is very powerful because it means you match supply and demand very efficiently. It means you take out cost and seed trust with customers, and the people who are managing the platforms.”

What is crucial is to have a clean process to analyse the “gigantic bird’s nest” of data now being made available and plan with accuracy, according to Ryan Garitty, Ford’s China material export manager.

Garrity acknowledged that there were now thousands of connections that hardly seemed to have a bearing in reality but he said that Ford was running a number of pilots to better understand the new data reality and establish a foundation for the future of its business.

Garrity went on to say that Ford was anticipating a decrease in the daily cadence of manual operations because of digital and automated processes in both manufacturing and logistics, and that the future was going to be more about “exceptions management”. That called for a new strategy in an industry that was no longer as predictable as it used to be and that involved a creative role for supply chain managers. What was crucial however, was that those managers ensured the first generation of data was sound.

“If the first generation of that data is not good, everything after that is just not going to work,” he said. “We are talking about different levels and states. The first level is how clean is your data and how clean is your process. That is the first step.”

Automating greater productivity
Joerg Storm, chief intelligence officer and director of IT service and parts at Daimler Greater China, gave a good example of where automated technology is helping it to achieve greater productivity and savings in the aftermarket. The company has trialled an automated warehouse robot called Bixi, which it has developed with Chinese technology start-up Water Rock Technology, for use in its parts distribution centres. The automated heavy load carrier is based on a “goods-to-people” concept for robotic technology and is already being used by the likes of Amazon and Alibaba for e-commerce warehousing. Storm said Daimler was the first OEM to use the technology and it has proved to increase productivity and accuracy for picking and bin allocation.

“We can get double the efficiency and productivity compared to the old manual process, and it is extremely easy to set up,” he said. “We implemented very clear guidance signals for our operators, so for example, we reduced the training time for our operatives down from two months to two days. We can dynamically add or remove robots or shelves depending on the business volumes, so it is highly scaleable.”

Storm went on to say that working with a Chinese start-up rather than a global provider had brought  mutual benefits, supporting the product maturity of Water Rock Technology and improving the warehousing process.

“During the time we worked together with the start-up, the robot and the whole process has been improved,” he said. It was absolutely the right decision and our partner was extremely motivated. It helped us to realise our overall IT strategy faster.

Daimler is also working with start-ups in China on a range of other digital proof-of-concepts, including image recognition for monitoring damage to finished vehicle deliveries using artificial intelligence, real-time route visualisation and strategic warehouse network design. Its WeChat mini program is being used by 1.3m customers and it is also implementing smart glasses and voice interaction at its PDCs. Storm said these too were enabling speed and momentum in the business.

Ford’s joint venture with Changan Automobile – Changan Ford – is also focusing on robotic automation of systematic work with one of its third-party logistics providers. Balakrishnan Adhi, deputy director, Material Planning and Logistics said the carmaker was building a digital workforce and programming the robots to help with repetitive tasks such as information gathering. The company is moving along a trajectory from “bots that do, to bots that think, and eventually to bots that analyse” and Adhi said that the implementation of the technology in the middle of this year would improve efficiency and standardisation.

18 April 2019 | Marcus Williams | Automotive Logistics

China’s automotive market is heading for change

China’s economy is entering a new phase of steady rather than rapid expansion and the automotive industry may have to accept that the days of exponential growth could be at an end, delegates were told at today’s Automotive Logistics Global Shanghai conference.

Yet GDP remains relatively high – predicted to reach up to 6.4% in Q1 2019 – and speakers felt there were several reasons for the automotive industry to remain positive, including opportunities in new energy vehicles (NEVs), the used car sector, and an impending transformation from straightforward manufacturing to a service model.

Cai Jin, vice-president of the China Federation of Logistics Purchasing (CFLP), said China’s economy had slowed but was on a more steady growth path. He pointed to encouraging signs including an uptick in the Purchasing Managers Index to above 50%, after being eight years below it. China has also seen a rebalancing of supply and demand after several years of surplus. There has also been an increase in purchasing and delivery prices, easier access to capital and recovery in the stock market.

For the automotive industry in particular, there was no need to be too pessimistic, said Cai.

“Last year the car industry went down a little bit but this year I don’t think we will do worse,” he reassured attendees.

The economy as whole, he noted, had shifted its focus from high speed to high quality, pointing towards China’s industrial maturation.

Xu Changming, vice-president of the State Information Centre, claimed that the latest government policies should be a cause for optimism. Whereas deleveraging was the key measure affecting the economy in 2018, he said the macroeconomic trend of 2019 had been one of reduced financing costs, something that has been contributing to a more favourable business environment for private companies and entrepreneurs.

Many customers were working for the small private companies which had suffered from the deleveraging policy, he explained, saying that this had contributed to poor sales performance at the lower end of the automotive market.

Although last year was the first since 2000 to see a drop in passenger car sales (-1.6%), Xu  said, the industry was heading back in the right direction with government support. He predicted that stable GDP growth in 2019 would boost consumer confidence and, therefore, the car industry, adding that he expected 0% growth in car sales in the short term, but felt “more optimistic” for the mid term and long term.

Automotive sales a drag on growth
Xiao ZhengSan, general secretary of the China Automobile Dealers Association, agreed that the country’s dealers had been experiencing challenges, including lower sales and a backlog of inventory. His opinion was that this year the market “may follow the gradual decline of 2018”.

He said that although approximately 30m new vehicles entered the Chinese market each year, in 2018 sales were down to 28m. Revenue was down by 2.8% and automotive sales represented only 10% of total retail consumption, compared with 12% in previous years. He said the automotive industry was “to some extent dragging the overall GDP growth”.

“Automotive is a pillar for the national economy, so we really have to think about this,” he warned.

Xiao said that 27% of China’s more than 29,000 dealers had been “struggling to make ends meet”, with 39% actually making a loss, and that only a small proportion managed to be profitable. According to Xiao, the biggest players have been the ones seeing growth, thanks to improvements in management and organisational structure.

Despite the negative backdrop, the number of dealers has increased by 3.9% according to CADA figures, mostly in developed regions of the country, and Xiao speculated that this might be due to the prospects for NEVs. He said that NEVs were “in a different track” from traditional vehicles and performing “quite well”, having increased their market share. That is still a tiny proportion, however.  Last year, about 1m EVs were on the market in China, with output rising by 50% and sales by 60%.

CFLP’s Cai Jin agreed that once the NEV market matured there would be even bigger growth. Manufacturers were experiencing some challenges, he said, and still needed to change the consumer perception of non-traditional vehicles. This will become even more important as the government progressively withdraws subsidies for NEVs up to 2020.

Xiao added that used cars were also “an important driver of the industry”, though this segment was so far a small part of the total market. While secondhand cars make up a large proportion of sales in the most mature markets, such as the US and Japan, in China sales of used cars last year amounted to 17m compared with 28m new vehicle sales. There is clearly room for growth, especially given that some Chinese cities have restrictions on the sale of new vehicles due to environmental policy – meaning that the only way to “trade up” is to buy a used car.

Future focused
Xiao identified four key areas of focus to drive forward the automotive industry and help it to grow sustainably: the lower end of the market; the used car market; new tools including vehicle financing; and stronger controls on vehicle purchases.

Cai Jin said there was a need for the car industry to develop and that transitioning to a modern supply chain would be “critical”. He said that when it came to the scaling of costs, China had reached a maximum and would need to see a reduction, especially for logistics.

A second key point, he said, was that the supply chain should evolve into an “ecosystem” of parts and vehicles, and aftermarket services – noting that a large proportion of total profit could be made after the sale of the car.

Cai Jin argued that, in future, China’s vehicle manufacturers would need “to do more than just make cars” and should provide “a whole process solution” involving the supply of services following the sale of the vehicle. He said this would be a trend for the future and it could potentially culminate in giving vehicles away at no cost, since the new service model would provide car companies with an ongoing revenue stream.

17 April 2019 | Joanne Perry | Automotive Logistics

Agreement on ‘enforcement offices’ could signal US-China trade war winding down

Dive Brief:

  • The U.S. and China will set up “enforcement offices” to ensure the stipulations in a trade deal are carried out, said U.S. Treasury Secretary Steven Mnuchin on CNBC Wednesday. “Both sides are taking this very seriously,” Mnuchin said regarding the enforcement mechanism. Such a deal could end the ongoing trade war between the two countries.
  • The current deal on the table gives China until 2025 to allow U.S. entities to wholly own businesses in China, according to Bloomberg. The enforcement offices would be responsible for monitoring this and other stipulations of the agreement, triggering retaliatory actions if the parties do not adhere to the deal.
  • Mnuchin, who continued negations with Chinese Vice-Premier Liu He this week, did not confirm on CNBC whether or not tariffs currently in place would be removed in the case of a finished deal, nor did he offer a timeline for completing the deal.

Dive Insight:

“If we can complete this agreement these will be the most significant change to the economic relationship between the U.S. and China in, really, the last 40 years,” said Mnuchin Wednesday.

Though an end to the China trade war would likely be welcomed by most U.S. businesses, this news from Mnuchin is much more comforting to those businesses that operate in China than those that simply purchase from China.

Last month, White House economic advisor Larry Kudlow ​told reporters tariffs on Chinese imports may not go away if and when the administration reaches a deal with China, and Mnuchin made no comment on the issue Wednesday.

On the same broadcast, Mnuchin said: “As soon as we’re ready and we have this done, [President Trump is] ready and willing to meet with President Xi and it’s important for the two leaders to meet and we’re hopeful we can do this quickly, but we’re not going to set an arbitrary deadline.”

Bloomberg’s report of the changes to company ownership requirements in China represents one of the historically intractable issues between the parties, which could be a good sign for progress if the provision indeed ends up in the final deal. Mnuchin declined to lay out any specific “sticking points” in the negotiations. He said the deal was currently 150 pages with “multiple chapters.”

12 April 2019 | Emma Cosgrove | Supply Chain Dive

China extends tariff suspension on US vehicles

Dive Brief:

  • China will continue to suspend tariffs on imported U.S. cars as trade negotiations between the two countries drag on, China’s State Council announced this week, Reuters reported.
  • China announced in December 2018 it would remove an additional 25% tariff on U.S. imports of cars for a three-month period beginning Jan. 1. This latest announcement is an extension of that change. The government said it would make a separate announcement detailing when these suspended tariffs would again take effect.
  • “It is a positive reaction to the U.S. decision to delay tariff hikes and a concrete action adopted (by the Chinese side) to promote bilateral trade negotiations,” the State Council said, according to Reuters.

Dive Insight:

The extended tariff suspension from China is the latest goodwill gesture between the U.S. and China amidst their ongoing trade war. Tariffs on $200 billion worth of U.S. imports from China were set to increase from 10% to 25% on March 1. Trump announced a delay to this increase in February, and tariffs have not increased since.

Trade negotiations between China and the U.S. are still unfolding. Vice Premier Liu He and a Chinese delegation are traveling to Washington this week to meet with U.S. trade partners on Wednesday, according to The New York Times.

The two countries hope to reach an agreement by the end of this visit and potentially hold a signing ceremony later this month with President Trump and Chinese President Xi Jinping, The New York Times reported.

China is not the only country in trade negotiations with the U.S. The Trump administration is also in talks with the European Union, and Trump said last month he is reviewing the potential for tariffs on European imports of automobiles, according to CNN.

If such tariffs went into effect, they could do more harm to the global economy than the U.S.-China trade war, World Trade Organization Chief Economist Robert Koopman said Monday, according to Bloomberg.

“U.S.-China trade is about 3% of global trade,” Koopman said. “Automobile trade globally is about 8% of global trade. So you can imagine that the impact of automobile tariffs are going to be bigger than the impact of the U.S.-China trade conflict.”

02 April 2019 | Matt Leonard | Supply Chain Dive