- On 17 September the US announced 10% tariffs on $200 billion of Chinese imports.
- The threat to raise them to 25% at year-end set a deadline that sped up business decisions.
- It is worth estimating the rise in cost, how much could be passed on in price and what margin would remain, and comparing it with the cost of changing supplier.
On 17 September 2018, the United States announced 10% tariffs on $200 billion of Chinese imports, with the threat of raising them to 25% at the end of the year. It was the second major widening of the trade war between the world’s two largest economies and a sign that the confrontation would not be resolved quickly. For those trading with either country, the question was no longer whether the conflict would affect them, but when and to what extent.
For companies, the news had two readings. The first, immediate: more products, more sectors and more supply chains were exposed. The second, more subtle: a threat with an expiry date forced decisions. Those buying affected products had three months to get ahead, look for alternatives or prepare to absorb the cost. That combination of widening and deadline changed the way many companies approached the matter. They stopped seeing it as a remote risk and began to treat it as a planning variable.
A new widening
With this announcement, the trade war extended to a much larger share of trade between the two economies. Unlike the first round, which mainly affected certain specific goods, this one reached a broad range of products.
The wider the list, the harder it is for a company to stay out of it. Consumer goods, industrial components and intermediate products form complex networks, and a tariff on one part affects the whole. Even those who do not buy those products directly may be affected if their suppliers or customers do, and it is the indirect effect that often goes most unnoticed. That is why it is worth asking key suppliers where their components really come from.
A threat with a timetable
The warning of raising the tariff to 25% at year-end introduced a deadline: companies had to decide whether to bring orders forward, look for other suppliers or absorb the increase in costs. When a threat carries a date, business decisions speed up.
Each option has its own risks. Bringing orders forward means tying up money and storing goods that may not be needed; changing supplier means trying new processes, qualities and lead times; absorbing the cost reduces the margin and may leave no resources for other needs. There is no single right answer, which is why it is so valuable to analyse one’s own situation with data and not by intuition. A simple spreadsheet with the affected products, their costs and their margins is usually enough to begin.
Deciding with numbers
A business owner can estimate how much their cost would rise if the tariff went to 25%, how much could be passed on in price and what margin would remain. With those scenarios, it is possible to compare the cost of changing supplier or finding another market with that of carrying on as before.
These calculations should include not only the tariff but also the associated costs: transport, storage, financing of inventory and possible loss of customers if the price rises. A financial or foreign-trade adviser can help build three simple scenarios, an optimistic one, an intermediate one and an adverse one, and identify which decisions make sense in all of them, which are usually the safest. Those are the decisions worth taking without waiting, while the others can wait until more information is available. Distinguishing between the two kinds of decision is part of planning.
Threats with a date are, paradoxically, easier to manage than those without one.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
