US firms evading Trump tariffs

US companies are evading President Trump’s goods tariffs by partly moving production abroad, shielding China for now from the effects of an escalating trade dispute, according to research by UBS Group AG.

“If US companies move a stage of their manufacturing overseas [to a country other than China], the trade tax is avoided,” Paul Donovan, chief economist at UBS Wealth Management, said in a note. He said China is not losing out as a result as its goods are still making it to the US eventually, just via a third country.

“Asian companies that might be considered rivals to China are not necessarily going to win trade share,” Mr Donovan wrote. “Instead it is the US that is losing out, and it is countries that can provide similar production facilities to those of the US that stand to gain.”

His view contrasts with that of some economists, who suggest Mr Trump is succeeding in making China pay most of the cost of his trade battles.

Mr Donovan predicted it will be harder for companies to evade tariffs once the number of them increases, and that adjusting supply chains will work less well as levies move from components like electrical switches to finished goods.

“The risk is the US administration feels emboldened by the limited economic damage from its earlier trade taxes,” said Mr Donovan.