Related losses: how do US trade duties affect US companies in the PRC

Washington’s decision to increase import duties on goods from China hit not only Chinese enterprises, but also American companies operating in the country. Almost 75% of manufacturers from the USA record the negative impact of higher tariffs on their business. This is evidenced by the results of a survey of companies in the American Chamber of Commerce in China (AmCham China) and the American Chamber of Commerce in Shanghai (AmCham Shanghai).

The study involved 250 US companies operating in the PRC. Most of them (61.6%) represent the industrial sector, 25.5% - services, 3.8% - retail trade, 10% - other industries. The survey results are published on the official website of AmCham China.

“The trade confrontation has put the US small and medium business, which owns most of the American enterprises in China, under attack. We are talking about manufacturers with an annual turnover of up to $ 6-10 million. For example, joint ventures for the production of unique equipment suffered, ”said Alexey Maslov, head of the HSE School of Oriental Studies, in an interview with RT.

According to the expert, there are currently at least 1.5 thousand large companies with 100% American capital on the Chinese market. Significantly more in the territory of the Asian Republic are represented by joint ventures, the shares in which belong to businessmen from the United States, China, and sometimes other countries, such as the United Kingdom. In general, as Maslov said, we are talking about tens of thousands of small and medium-sized firms with American capital.

As a result, according to the expert, amid the worsening trade war, the total losses of American companies operating in China could exceed $ 100 billion.

As follows from the assessment of AmCham China, the tariff confrontation between Washington and Beijing will most strongly affect US industrial enterprises in the PRC. So, today, 81.5% of companies are experiencing difficulties due to the increase in duties by the United States, 85.2% suffer from counter restrictions from the PRC.

Recall that in 2018, the United States imposed duties at a rate of 10% and 25% half of Chinese exports (totaling $ 250 billion). In response, Beijing introduced tariffs ranging in size from 5% to 10% for US imports of $ 60 billion.

After 11 rounds of trade negotiations from the beginning of 2019 in May, Washington raised import duties on Chinese goods totaling $ 200 billion. In addition, US President Donald Trump also ordered the launch of the process of imposing tariffs on all other duty-free goods from China. We are talking about products worth $ 300 billion. Response from Beijing followed immediately - China will increase duties on US-made goods from June 1 in the amount of $ 60 billion.

According to experts interviewed by RT, during the time of trade cooperation, the United States and the People's Republic of China have built production chains in which enterprises located both in the States and in China are involved. As a result, companies in both states were under attack.

For example, according to AmCham China research, a rise in tariffs may lead to a decrease in demand for products of American enterprises located in China. This was reported by 52.1% of surveyed companies. 42.4% reported a potential increase in production costs, 38.2% could raise prices for their products.

“As an example, we can take the situation with the American frozen meat delivered to China, from which sausage is made in China. Beijing's import duties contribute to the appreciation of this meat, which increases the cost of the final product. The demand for sausages made from American raw materials may fall because, for example, Argentina supplies its meat to China without duties, ”explained Alexey Maslov.

As the expert said, even before the start of the trade war, the Chinese tax authorities were going to meet US firms that opened their production in China, and were ready to discuss the possibility of tax cuts. However, to date, such discussions have stopped.

Forced departure

As follows from the AmCham China survey, in order not to be subject to duties, almost 40% of American companies are either considering the possibility of transferring their enterprises outside of China, or have already made such a decision. For some industries, moving is costly.

“The transfer of high-tech production will be very expensive. China has created a professional industrial base where the company can produce any product. In China, the supply of resources, industrial processing, packaging and shipment to markets has been established. To create such a production in another country, you must first develop the supplier base, build logistics chains, financial schemes, insurance, ”explained Sergey Lukonin, head of the Chinese economy and policy sector at IMEMO RAN, in an interview with RT.

According to experts, the headquarters of major American consulting companies, engaged in business throughout Asia, also thought about moving from China.

Firms that prefer to stay in China are looking for other opportunities to avoid additional costs from fees. Thus, 35.3% of companies reported that they began to focus more on the domestic Chinese market. According to analysts, such actions will positively affect the economy of China, but will lead to additional losses for the States.

“The United States will have to look for new suppliers for various products, and it may take up to three years to fully compensate everything. In this case, in the first year, the volume of goods supplied to the US market may fall. In addition, the average price of these products will increase. For some categories, the price increase will be from 5% to 10%. For Americans who are accustomed to cheap goods, this will be a serious blow, ”says Alexey Maslov.

According to the expert, manufacturers of food products, cosmetics, drugs, microchips and computers may be reoriented to the Chinese market in the first place.

It is noteworthy that in conditions of an unstable situation, American companies in China do not risk expanding their production. A third of companies surveyed by AmCham China reported that they postpone decisions on new investments or completely abandon investments.

As the director of the BCS Broker sales office, Vyacheslav Abramov, told RT, on the whole, the tariff confrontation between the two countries will lead to a slowdown in GDP growth in the USA and China by 0.25%, while the import volume of both countries will decrease by 0.75%.

Analyst GC "FINAM" Leonid Delitsyn notes that not only American firms in China, but other American manufacturers can lose up to 25% of sales in the Chinese market. The expert also warns of a possible decrease in the market capitalization of a number of US companies, for example, those engaged in information and communication technologies. In this sector, market capitalization is largely based not on current indicators, but on future potential, including success in the growing Chinese market, Leonid Delitsyn said.