Evaluating US Tariffs and Broader Changes in US-China Trade Dispute

Chinese-American economic equilibrium appears to continue to create volatility in market growth and require conservatism in some areas and bold moves in others. Yet, an analysis on private sector needs for changes in the business model —from consumer targeting, product offerings, supply chain, and capital structure and ownership remain under analysis. Generally, uncertainties lead to lower levels of long-term investment and increase valuation volatility of many kinds of assets. Companies are expected to follow prudent conservatism in many areas, with few bold moves when one-time opportunities arise.

While tariffs are often the center of economic discussions, other broader changes should be of greater concern. The dispute has affected permissions of Chinese businesses to access US markets, permission to acquire US companies and the transfer of American intellectual property. There exists a chance the United States and China agree on a status quo on tariffs, yet no plans appear to have been made for those broader changes. Tariffs affect only companies exporting from China, but those other factors specifically restrict Chinese companies and their investors.

In fact, China’s domestic market size, efficiency of supply chains along with a declining Chinese currency, increased export-tax rebates, and mix reconfigurations, combine to limit the pain exporters have experienced from US tariffs to date.

Additionally, globalized consumer-goods companies may circumvent a majority of tariff impact through their worldwide footprint of manufacturing plants. Companies can simply use spare capacity in these plants to work and would incur additional operating costs but limit their expenditure on capital investment. Should additional capacity be required, existing facilities are often the targets of such investments. In this case, most of Eastern Europe, India, and the Philippines allow themselves to be destinations seen with the capacity to provide workers and supply-chain infrastructure.

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