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US companies on edge over China tariff threat to supply chainsLong list of components facing punitive levies could have damaging knock-on effects
17 hours ago
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The Trump administration says the ultimate goal of its threatened tariffs on imports from China is to bring back manufacturing jobs in the US. Jason Andringa, who runs an agricultural and construction equipment maker in Iowa, says they could have exactly the opposite effect.
His business demonstrates how complex international supply chains mean that new tariffs can have damaging unintended consequences.
Vermeer, where Mr Andringa is chief executive, imports cabs assembled in its plant in Tianjin, China, that it uses for its drilling vehicle made in Iowa. Using the lower-cost imported cabs helps Vermeer stay competitive against German and Chinese rivals, in the US market and around the world.
But the components were on the commerce department’s list of imports from China threatened with a new 25 per cent tariff. If the administration follows through on that threat, Vermeer’s competitive position will be eroded.
“We have 600 jobs at our Iowa factory as a result of being able to import products, and we have American production sold into global markets,” Mr Andringa says.
“If the US goes ahead with a unilateral tariff, it is going to create global opportunities for companies in other countries to go after.”
A farmer in Iowa who plants soyabeans and doesn’t know if there will be tariffs in China is not going to be quick to invest in equipment. Even if it is just a tactic for talks, the dampening effect is real
Dennis Slater, Association of Equipment Manufacturers
Vermeer had been planning to launch a new product line, using another Chinese component, to offer customers a lower-priced alternative. “A 25 per cent tariff makes that strategy obsolete,” Mr Andringa says.
The threatened new tariffs come on top of the problems already caused by the jump in the price of steel, caused by an earlier round of tariffs imposed last month. Platts benchmark US-made hot rolled steel coil has risen by 34 per cent since the start of the year. Although Vermeer can pass some of that increase on to its customers in higher prices, it will have to absorb some of it in lower profits.
The list of 1,333 categories of Chinese products facing possible tariffs excluded many of the largest US imports, including phones, clothes and shoes, to minimise the direct impact on consumers. The result has been that many components and pieces of equipment used by businesses have been threatened instead.
“The administration thinks you can force everyone to bring supply chains back home to America,” says Rufus Yerxa, president of the National Foreign Trade Council, a group that argues for open markets.
“But in a world of very globally integrated markets and supply chains, tariff policies are going to have a negative impact on jobs.”
In the long term, he added, any country could repatriate its supply chain if it wanted, but that would mean having much higher costs and giving up the benefits of trade.
The pressures on US manufacturers caused by the proposed tariffs are compounded by the threatened retaliation by China against US exports, including soyabeans and aircraft.
Customers facing potential blows to their sales in China will be less willing to invest in new machinery, says Dennis Slater of the Association of Equipment Manufacturers.
“A farmer in Iowa who plants soyabeans and doesn’t know if there will be tariffs in China is not going to be quick to invest in equipment,” he says.
“Even if it is just a tactic for talks, the dampening effect is real?.?.?.?People in the US who might want to buy products are really facing uncertainty now.”
Manufacturers do not want to be seen as opponents of President Donald Trump, Mr Slater says. The economic policies of his first year, in deregulation and corporate tax cuts, were very welcome. But he now wants the administration to listen to manufacturers.
“We’re saying: ‘please understand the significance of its impact on industry’,” Mr Slater says. “If you really want to hurt manufacturing, start a trade war.” |
