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China

Why is the U.S. in a trade war with China?

Suzanne Offerman  Director, Product Management, International Trade, Thomson Reuters

Suzanne Offerman  Director, Product Management, International Trade, Thomson Reuters

One reason the United States finds itself in a trade war with China and many allies is that some multinational corporations are sitting on the sidelines rather than voicing their opinions.

Step up to the bar at the recent 97th Annual American Association of Exporters and Importers (AAEI) Conference and Expo and you could order a new cocktail aptly called the “533,” which is what you get when you add 232 with 301. For those unfamiliar with the significance of those numbers, by the time the conference started, the United States administration imposed tariffs on steel and aluminum under Section 232, then shortly after the conference ended, imposed tariffs on Chinese imports under Section 301.  Although I did not order the 533, I wondered to myself whether it contained bourbon or whiskey (two possible casualties of this tariff “war”) as U.S. President Donald Trump’s “America First” trade policies spark retaliations from allies and condemnation around the globe.

The administration’s trade policies seemed to spark condemnation from most with whom I spoke at the conference. This fascinated me, not substantively (as a trade nerd, I get why nobody attending wants uncertainty, higher tariffs, or protectionism), but because this is the only time I can recall in 20 years involved in international trade, where trade professionals in multinational corporations harbored such strong opinions, but would not, or could not share them officially with the administration.

Crane department supervisor Chad Swan, stands on the upper catwalk of a ship-to-shore crane at Wando Welch Terminal operated by the South Carolina Ports Authority in Mount Pleasant, South Carolina, U.S. REUTERS/Randall Hill - RC1C1B92CC00
Crane department supervisor Chad Swan, stands on the upper catwalk of a ship-to-shore crane at Wando Welch Terminal operated by the South Carolina Ports Authority in Mount Pleasant, South Carolina, U.S. REUTERS/Randall Hill

First l will describe the “would not” category.

Those who worked for companies who would not speak to the Trump administration about its trade policies and specifically, about section 232 and 301 tariffs, fell into three categories:

  • Those who feared alienating Trump supporters,
  • Those who feared becoming the subject of the next presidential Tweet
  • Those who feared targeting by governments and customers outside the U.S.

Consider a situation in which a U.S. brand formally protests the additional tariffs on goods it produced in China and imported back to the U.S. President Trump might then broadcast how this brand “does not support American workers” because it produces everything in China. True or not, the brand would likely be negatively affected.

Harm to the brand is not the only potential fallout from criticism or support to the President’s trade policies. It also can affect a company’s supply chain. U.S. companies have become subject to retaliatory tariffs, and some have experienced a sudden slow-down at the border upon export, simply because they are shipping American-brand products made in China.  Companies are not willing to take the chance.

I talked informally to some at the AAEI conference who remain silent about the tariffs because they need to conduct business in China and do not want to face the same fate at the border as Ford Motor Co. and others. So, they remain silent even when their trade expertise both substantively and procedurally is needed. These were the people who work both in the trenches of day-to-day importing and exporting, as well as shaping policies for their respective companies. They are sitting on the sidelines watching the U.S. administration get into a trade war with its trading partners, rather than giving much-needed advice on why a trade war is not good for their specific businesses.

The trade war has also led to unintended consequences for the multinational companies who will not speak up.  One consequence mentioned most frequently at the AAEI conference was the increasing amount of work for those within trade departments.  They are now tasked with keeping abreast of the tariff shifts, and reporting how these tariffs will affect supply chains and cost of goods.  Other consequences discussed include the issue of vendors expecting U.S. companies to split the cost of the additional tariffs; language in contracts that kept pricing open depending on what tariffs are in place at time of arrival; and the decrease in demand of “Made in USA” goods.

Exceptions to the “would not” category do exist, although they are rare. Apple CEO Tim Cook has met with Trump administration officials specifically on the topic of trade to prevent the punitive tariffs Trump later placed on Chinese-origin goods. Although Cook did not unilaterally prevent a trade war between the U.S. and China, the U.S. administration has agreed informally not to place tariffs on iPhones made in China.

Farmer Brian Duncan stands for a portrait in a building of pigs nearing market weight on his farm in Polo, Illinois, U.S. American pork is one of the trade items in China's crosshairs. REUTERS/Daniel Acker
Farmer Brian Duncan stands for a portrait in a building of pigs nearing market weight on his farm in Polo, Illinois, U.S. American pork is one of the trade items in China’s crosshairs. REUTERS/Daniel Acker

Lastly, I will describe the “could not” category, referring to those companies or associations that could not give an opinion to the administration, even if it desired to do so. They fit broadly into two categories: Those multinational corporations where business units did not agree on the tariffs, and trade associations that includes members who did not agree on the tariffs. Consider the scenario of a steel company that has plants around the globe. One business unit may want the tariffs on steel, whereas another business unit may not. Or, a business unit may want the tariffs on some steel products, but not certain inputs. The steel company cannot give an opinion because there is a divergence of opinion within its own company.

Similar disagreements occur within trade associations, themselves made up by a myriad of interests.  How can a trade association give a substantive opinion to the U.S. administration on its policy, when its members do not agree on it?  Thus, many trade associations comment only on administrative aspects, rather than the substance, or not at all.

Exceptions to the “could not” category also exist, but are recent.  While the National Retail Federation has not met with the Administration, it has asked U.S. Congressional leaders to stop “a tit-for-tat trade war. . . [where] American families are caught in the middle,” said Matthew Shay, president and CEO of the National Retail Federation.

My advice to the multinational corporations producing goods around the globe: Speak up!  Give advice on a better way for the U.S. administration to “negotiate a level playing field on trade.”  Show the administration how a specific tariff is going to hurt your business.  A roundtable discussion over a 533 cocktail during an AAEI Conference is an interesting place to discuss trade policy, but will not de-escalate a trade war.  Remember, Trump has met recently with everyone from reality TV star Kim Kardashian on freeing Alice Marie Johnson from federal prison to North Korean leader Kim Jong-Un on de-nuclearization of the Korean peninsula.  He may be willing to meet with you, too, on trade.

Shipping containers at Pier J at the Port of Long Beach wait for processing in Long Beach, California, U.S. REUTERS/Bob Riha Jr.
Shipping containers at Pier J at the Port of Long Beach wait for processing in Long Beach, California, U.S. REUTERS/Bob Riha Jr.

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