- On 15 January Washington and Beijing signed the first phase of their trade agreement, with China pledging to buy more American goods.
- Further tariff increases were put on hold, but the underlying tension did not go away: it was a pause, not an ending.
- For a company, the useful question is how much it depends on a single market, customer or supplier, and which alternatives it has identified.
On 15 January 2020 Washington and Beijing signed the first phase of their trade agreement, known as “phase one”. China pledged to buy more American goods and further tariff increases were put on hold, so the escalation between the world’s two largest economies was halted, at least for the time being.
That two great powers agreed a truce mattered far beyond them. Tariffs alter the prices of raw materials and intermediate goods, and change the routes along which merchandise travels. A pause reduced uncertainty, although nobody could be sure it would last, and companies that relied on international trade knew it well.
How a tariff works
A tariff is a tax paid when a product is imported. The importer pays it at customs and, in practice, it makes the goods dearer for the buyer: the importing company can absorb part of the cost, pass it on to the customer or look for another supplier. Depending on how each link in the chain reacts, the final effect is shared out in very different ways.
In a tariff war, each country answers the other’s duties with new duties, and the result is trade that is more expensive and less predictable. “Phase one” did not remove that tension, but it temporarily halted its escalation. It is worth remembering that a partial agreement leaves many issues open: what is signed is usually a first stage, and the next ones depend on the political will of both sides. Meanwhile, the sensible course is to follow the announcements without treating any issue as closed.
The effect on European exporters
European companies were not party to the agreement, but they were exposed to its consequences. Changes in trade flows, in commodity prices and in demand from the large markets reach them indirectly: a customer who buys less, a supplier who raises prices, a competitor who diverts its output to other markets. None of those moves appears in the accounts under the name of the agreement, but all of them show up in sales and margins.
For these companies the truce was a breather, not a solution. Nothing guaranteed that it would be final, and planning investments, supply contracts or long-term prices on a situation that could change with one announcement remained difficult. Anyone who exports or imports should assume that the rules of trade can change at short notice.
Measuring dependence
For a business owner, the useful question is how much of the business depends on a single market, a single customer or a single supplier, and what would happen if the rules of trade changed overnight. A simple way to see it is to calculate what share of sales and purchases is concentrated in each country, and to check whether contracts allow prices or deadlines to be renegotiated if tariffs change. With that data it is quickly clear whether the concentration is reasonable or excessive.
Knowing that exposure, and having alternatives identified, costs little compared with improvising them. The aim is not to abandon a market that works, but to know what options exist: other approved suppliers, other export destinations, review clauses in contracts. It is an exercise worth repeating from time to time with the adviser, because dependence changes as the business grows. What was yesterday a comfortable relationship with a large customer can become a fragility tomorrow.
The lesson of those years still stands: depending on a single market or supplier is a risk worth measuring before it materialises.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
