Effects of the US-China trade war on SME’s in China
Effects of the US-China trade war on SME’s in China
Trump’s campaign route towards the white house in 2016 was paved with China. He pointed towards China and stated they “outmanoeuvred the US”. Apart from this complimentary remark, he also accused China of various wrongdoings. From dumping exports to devaluating their currency. With the recent import tariffs, Trump is making true on his promise to try to level the playing field. This trade war impacts companies doing business in China.
The US points towards Intellectual Property theft to justify the imposed import tariffs. These tariffs are at the basis of a trade war shaking global trade. It is no secret however that the real reason behind the trade war is evening out the huge trade deficit between the two nations. China responded quickly and also added import tariffs on a variety of products.
Impact on companies of the US-China trade war
The US-China trade war and the effects it might have on global trade, is something for esteemed economists to judge. The effects on giant multinationals is already unfolding. General Motors, the US car manufacturing company, announced that the tariffs on steel caused them to negatively adjust profit forecasts with a whopping 1 billion dollars. Our interest lies at what it means for small medium enterprise companies globally, invested in doing business with China.
The amount of impact of the US-China trade war on the business of a SME entrepreneur, depends on a variety of factors. The most logically affected SME’s are companies involved in trading between the US and China. These are all the companies who import any type of Chinese product into the US Furthermore US companies exporting cars, smaller aircrafts, computers, meat, wheat, wine and soy beans towards China suffer too. A real risk for companies are tariffs that are suddenly imposed when the product is on its way through shipping. It can be that orders are placed, but the final product is subject to the increase in tariffs which have increased costs by for example 25 percent. This creates a lot of uncertainty and potential issues.
Does that mean that European SME’s are not affected at all? Apart from the effect the US-China trade war might have on the global economy, there are more scenario’s in which companies are affected. In order to explain the effect, it is best to use an example. When a Belgian company sells and constructs stables for cows in the US, but their competitiveness relies on lighting from Chinese suppliers, they are also affected. Because they now have to pay a 25% tariff on these Chinese produced products.
Companies with branches in China plus other South East Asian countries benefit from the regulations. They have the chance of becoming more competitive compared to their Chinese competitors. An example of this is BSK Fashion. This international bag producer started in China, near Guangzhou. Due to rising labour costs, BSK decided to set up a second plant in the developing country of Myanmar. Due to the rise in tariffs of Chinese products, the bags produced in China have become significantly more expensive. The bags produced in Myanmar do not have this issue and orders of American customers will now be produced in that country.
Home sweet home
The effects of the US-China trade war for SME’s that are based in China, so companies only active within China and relying on locally sourced goods, could be positive. The competitors who rely on foreign markets, will become less competitive. The same goes for US based SME’s only active in the US.
We don’t know if the trade war will balance the trade deficit of the US. Neither do we know if it will bring jobs back to the US However, it is safe to state that any company around the world might be affected by the trade war between the US and China. The question companies should ask themselves is if it affects their business directly. To determine if and what effect the trade war has on companies in China, it is important to look at the business variables. Are you operating in goods or services? Do you rely on trade between the US and China to be competitive? Is your supply chain influenced by Chinese or US tariffs?
Let us know if and how you expect to be influenced by the trade war.
Michael got acquainted with China when his sister was adopted in 1996. His first trip to China was in 2008, visiting the Olympics and his parents, who live in Beijing. In 2011 Michael joined the team of 1421 Consulting Group, as Business Development Manager Europe. He has helped to establish 1421 Consulting Group in the international market as a respected consultancy assisting western companies doing business with China. Since October he became the group CEO.
What happened in the year 1421?
From 1421 to 1423, during the Ming Dynasty of China under Emperor Zhu Di (朱棣) the fleets of Admiral Zheng He (鄭和), commanded by the Chinese captains, discovered Australia, New Zealand, the Americas, Antarctica, the Northeast Passage; and circumnavigated Greenland.
Due to this endeavour we can conclude that “1421 is the year that the Chinese discover the world”.