Companies Shrugging Off Effects of US-China Trade War, EU Chamber of Commerce in China Says
Large European companies are increasingly side-stepping U.S.-China trade war tariffs by reorganizing supply chains, while smaller companies are finding creative ways to dodge tariffs or simply eat the costs, according to a Dec. 9 report from the European Union Chamber of Commerce in China. The fact that European companies have “negated” the effects of trade war tariffs “only serves to highlight the futility of bilateral tariffs in a global marketplace,” said Joerg Wuttke, president of the Chamber. “Repetitive swings of the tariff hammer have proven anything but strategic.”
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“Many” larger European companies have accepted the “lasting nature” of the trade war, the report said. Aside from moving supply chains out of China to Southeast Asia and India, the companies are also “leveraging their global corporate networks” to avoid extra costs. Although making changes to supply chains is “costly,” it is still “far cheaper” than being caught in the trade war and paying 25 percent tariffs on certain goods, the report said.
Although smaller companies are being hurt more by the tariffs, some firms that produce “extremely high-quality goods” have an advantage because their products are “often irreplaceable to customers who are unwilling to accept anything less.” This allows the companies to maintain their prices while “passing the tariff cost along to Americans downstream.” A disadvantage to this, however, occurs when European companies in China have suppliers only located in the U.S., the report said. In this scenario, the U.S. supplier can pass the cost along to China.
The Chamber said the U.S.’s trade war with China is not having its intended effect on European companies, mostly because larger firms are paying “marginal costs” for outmaneuvering tariffs while smaller firms either pass the costs along or eat the costs themselves. “Is this meeting the intended goal of driving investors -- particularly larger companies -- from the Chinese market back to the US?” the report said. “Clearly not.”