GERMAN CARS, AMERICAN STEAK: EARLY VICTIMS OF TRADE WAR
China’s retaliatory tariffs on US goods struck just as one of its biggest meat importers was rushing a shipment from California through Shanghai customs. Now Suzhou Huadong Foods Ltd is saddled with a stack of unaffordable American steak.
Only three containers of frozen produce including prime rib and pork loin came through before the new levy slapped as much as 500,000 yuan ($75,000) on each of the remaining half-dozen crates, according to Gong Peng, the importer’s general manager. “We have no choice. We have to eat the costs,” Gong said in an interview. “We are guaranteed to dramatically lower our purchases of meat from American ranchers.”
Triggering what China calls “the largest trade war in economic history,” the US on July 6 imposed a 25 per cent duty on $34 billion of Chinese imports. Beijing immediately responded with tariffs on US soybeans, meat and vehicles. Suzhou Huadong, which supplies supermarkets such as Walmart’s Sam’s Club in China, is just one of the early victims. For automobiles and whiskey makers to companies along the complex global supply chain that defines modern manufacturing, it is a moment of reckoning as they grapple with higher costs and whiplashes from some of the earlier business decisions.
The ability of tariff-hit companies to weather the conflict may partly depend on the amount of stock they managed to import before higher levies kicked in. But once those supplies run down, they’ll have to absorb the tariffs or pass them on to customers.
Take Ford Motor and Tesla; both automakers announced price cuts in China only weeks ago, making their Lincoln and Model S sedans within the reach of more consumers after China lowered tariffs on all foreign vehicle imports to 15 per cent. Starting July 6, those same models — if they are made in the US — are subject to a 40 per cent levy. Tesla raised prices for its Model S and Model X by 150,000 yuan to 250,000 yuan after the additional tariffs, according to a sales representative. That would take the retail price of a Model S to as much as 1.47 million yuan. Ford said it will refrain — at least for now — from raising prices. The top-of-the-end Lincoln Navigator model costs 1.16 million yuan.
BMW and Daimler also face higher costs because they import luxury models to China from their US assembly plants. BMW says it won’t be able to absorb the higher levies completely and is calculating the necessary price increases. Daimler declined to comment beyond saying it aims to offer competitive conditions to buyers.
President Donald Trump is eyeing tariffs on another $16 billion of Chinese goods, and he indicated last week that the final total could surpass $500 billion. Trump’s course of action only means more US companies will lose out in China as the country opens up, the People’s Daily, the Communist Party’s flagship newspaper, said in a commentary on Monday. The zero-sum mentality of US policymakers will not only hit economic and trade cooperation between China and the US, but also brings further uncertainty to the world economy, it said. With neither side backing down, the prospect of a tax on almost every China-made product entering the U.S. and reprisals by China means many more businesses could come in the cross hairs. “Businesses hate uncertainty,” said Jacob Parker, vice president of China operations at the US- China Business Council. “If you are uncertain, you don’t invest; if you are uncertain, you don’t hire. Companies don’t know how big this may get, or how it will end.”