Primer on Tariffs and Their Impact on Manufacturers and Distributors [Video]
Update 12/3/18: United States and China Reach Temporary Agreement to Delay Tariff Boost
The United States and China signed a temporary agreement that will defer raising tariffs on $200 billion of Chinese goods for 90 days to allow for talks between the two countries. Several tariffs were set to rise from 10 percent to 25 percent, effective January 1, 2019. Here are some key highlights of the discussions between President Trump and Xi Jinping:
- China will purchase a substantial amount of agricultural, energy, industrial, and other products from the United States to lower the trade imbalance between the two countries.
- Both sides will commence discussions on structural changes related to technology transfer, intellectual property protection, and cybersecurity with a goal to protect American technology and intellectual property.
- Beijing will designate fentanyl as a controlled substance. The goal of this provision is to curb opioid addiction in the United States. It is believed that this drug is mostly manufactured in China.
- China will allow a previously unapproved deal between two semi-conductor manufacturers.
The purpose of the 90-day suspension is to give space for both parties to continue discussions and negotiations. However, President Trump has warned that if the two parties do not continue to make progress following the 90-day reprieve, the U.S. tariffs will be re-instated as planned.
The Trump Administration’s imposition of tariffs on Chinese raw materials and imports has tremendous implications for U.S. manufacturers, distributors, suppliers, and investors.
We recently sat down with Omar Nashashibi of the Franklin Partnership and recorded a series of short videos that can help you better understand the goal of tariffs, their likely impact on inflation, the current and near-term trade environment, potential global quotas, and strategies for staying competitive.
Current tariff exposure
Here’s a short summary on the U.S. tariffs on raw materials and imports, as well as the retaliatory tariffs from other countries on autos and automotive parts. There are currently tariffs from all over the world on virtually all steel and aluminum entering the United States.
End game for tariffs
The goal of tariffs is to level the trade balance with China and the entire globe. Ultimately, however, tariffs are designed to create a global quota system that could control the sourcing of materials like steel, aluminum, semi-conductors, uranium, and artificial intelligence items.
Timeline to tariff relief
No tariff relief is likely coming in the near future. There may be more clarity on what lies ahead after the 2018 mid-term elections, but the trade war is a long-term battle, and any easing up on tariff rates won’t likely come before spring of 2019.
Being globally competitive with tariffs
Omar Nashashibi offers strategies manufacturers and distributors can employ to stay competitive on the world market amid tariffs and quotas, including how to consider customers as well as suppliers.
Tariffs increasing reshoring activity
Manufacturers are bringing operations back to the United States from abroad as China becomes more expensive to operate in, partly because of wage increases and rising transportation costs, as well as tariffs and potential quotas.
Tariffs’ long-term impact on inflation
Surcharges and suppliers’ increasing costs are expected to drive the price or raw materials and create a captive market for the next few years, making greater inflation a likely outcome through 2021.
How we can help
CLA’s manufacturing and distribution professionals and international business advisors can help you assess the impact of tariffs on your operations and craft short- and long-term strategies for competing amid the trade war.