Authored by: Vijendra Kargudri

The US – China Trade War

The world has been witness to an escalating trade war between two of the largest economies – the United States and China. The back and forth of tariffs and accusations has been dizzying, but it does seem to be headed towards a resolution.

It all began in the name of “fair trade practices” and “unfair transfers of American technology and intellectual property to China”, in addition to an effort to protect jobs in the US.  Accusations of not honoring commitments lead to additional US tariffs on $200 billion of Chinese imports. In response China announced 5-25% tariffs on $60 billion of US imports, which was countered by a new 25% tariff on all remaining Chinese imports, totaling $300 billion worth of goods.  The question remains- how does this trade war affect the rest of the world?

The impact of such a trade war between two trading giants

There will be plenty of winners and losers. Many businesses from countries other than the US or China will make use of this trade war to their benefit. Globally, most businesses inadvertently either have a supplier for a component produced in China or have a supply chain leading into the US market. If the trade war mellows down and ends, it will be good for all, but if it escalates as it has so far, then any business/country siding one of the two countries will invite the wrath of the other and lose in the bargain.

Also, the most important thing one might overlook is the currency being used in the trading activity. A strong US Dollar against a weak Chinese Yuan would disrupt the global market in many ways. The repercussions can bring volatility for both – commodity prices and currencies.

Further escalation of the trade war between the two major economies would have many collateral damages on either side of Wall Street and the China Wall!

In particular, the Manufacturing Sector – the engine of growth, will be adversely affected as they are the ones who will take the biggest beating. Such companies that will take the hit for the imposed tariffs will eventually pass the higher cost onto their customers.

This trade war isn’t just between the US & China. Earlier this year, the US has commenced charging levies on the imports of steel & aluminum from the EU, Mexico, and Canada. And, recently the US withdrew Generalised System of Preferences (GSP) scheme for India that allowed duty-free export of over 3,000 products from the country.

Many feel such a trade war can be catastrophic in days to come for all, taking its toll on global commerce, denting – business profits, market confidence, business & consumer sentiment, employment, and delays in investment decisions by business houses. Also, prolonged tariff threats will result in slow growth or even lead to yet another recession as stated by Morgan Stanley!

How can companies protect themselves during the trade war?

While businesses globally start to brace for the impact of existing and future tariffs, some distributors will try to clear the way by rolling tariffs into their prices, while others will depend on manufacturers to account for the cost after the purchase. Also, policymakers in the region and beyond will need to roll out more stimulus. As the manufacturing industry comes to terms with the tariff issue, the policies continuing to be in flux will make it almost impossible to determine the total expenditures. So how can businesses having to take sourcing decisions begin to tackle the growing tariffs problem?

With factors like the product’s country of origin, varying tariff rates and policies, along with the HTS codes adds to the complexity. A one-size-fits-all strategy & solution will not work for every business. For every supply chain and product, the strategy & solution to mitigate the impact of tariffs will be different.

As a preferred SAP Partner, Krypt has partnered in the success of global businesses in helping them implement SAP GTS, TM, EWM & IBP. Any business that is globally trading and is a part of a large supply chain can benefit from Krypt’s products/services for the following:

• Monitor & manage tariffs changes
• General clauses for service contracts
• Detention & Demurrage, Storage & Monitoring (DDSM) conditions and surcharges
• Bill of lading (B/L) conditions and surcharges
• Product classification, customs duty calculation & online filing of export/import clearances
• SPL & Duty Drawbacks
• Integrate disparate processes across the supply chain and provide visibility of insightful decision making.

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