China’s retaliatory tariffs on U.S. goods struck just as one of its biggest meat importers was rushing a shipment from California through Shanghai customs. Now, Suzhou Huadong Foods Ltd. is lumbered with a stack of unaffordable American steak.
Only three containers of frozen produce including prime rib and pork loin came through before the new levy slapped as much as 500,000 yuan (about US$75,000) on each of the remaining half-dozen crates, according to Gong Peng, the importer’s general manager.
“We have no choice. We have to eat the costs,” Mr. Gong said in an interview. “We are guaranteed to dramatically lower our purchases of meat from American ranchers.”
The United States triggered what China calls “the largest trade war in economic history” on July 6 when it imposed a 25-per-cent duty on US$34-billion of Chinese imports. Beijing immediately responded with tariffs on U.S. soybeans, meat and vehicles.
Suzhou Huadong, which supplies supermarkets such as Walmart Inc.’s Sam’s Club in China, is just one of the early victims.
For automobiles and whisky makers to companies along the complex global supply chain that defines modern manufacturing, it is a moment of reckoning as they grapple with higher costs and whiplashes from some of the earlier business decisions.
The ability of tariff-hit companies to weather the conflict may partly depend on the amount of stock they managed to import before higher levies kicked in. But once those supplies run down, they’ll have to absorb the tariffs or pass them on to customers.
Take Ford Motor Co. and Tesla Inc. Both automakers announced price cuts in China only weeks ago, making their Lincoln and Model S sedans more affordable for consumers after China lowered tariffs on all foreign vehicle imports to 15 per cent. Starting July 6, those same models – if they are made in the United States – are subject to a 40-per-cent levy. This affects not only U.S. manufacturers: BMW AG and Daimler AG also face higher costs because they import luxury models to China from their U.S. assembly plants.
Tesla has raised the prices for Model S and Model X by 150,000 yuan to 250,000 yuan due to the additional tariffs, according to a representative who answered the car maker’s sales hotline. A spokeswoman for Tesla declined to comment. Ford said on Friday that it would refrain – at least for now – from raising prices of Ford and Lincoln models imported into China. BMW and Daimler didn’t immediately respond to e-mails seeking comment.
U.S. President Donald Trump is eyeing tariffs on another US$16-billion of Chinese goods, and he indicated last week that the final total could surpass US$500-billion. With neither side backing down, the prospect of a tax on almost every China-made product entering the United States and reprisals by China means many more businesses could come in the crosshairs.
“At this stage, the biggest impact is probably uncertainty, which is already having an impact,” said Jacob Parker, vice-president of China operations at the U.S.-China Business Council. “Businesses hate uncertainty. If you are uncertain, you don’t invest; if you are uncertain, you don’t hire. Companies don’t know how big this may get, or how it will end.”
Hemp Fortex Industries Ltd. says it isn’t waiting. The Chinese maker of clothing and natural fabrics – and a supplier for U.S. and European brands – is seeking to move its manufacturing outside China. More than half of the company’s revenue comes from American customers, potentially exposing them to any future U.S. tariffs on China-made goods.
“Our big clients now are very actively discussing with us on how to shift more production from China to Southeast Asia,” said Ding Hongliang, founder of the Qingdao-based company. “The U.S. is a great market that cannot replaced by anywhere else.”
At Suzhou Huadong, the importer that lost its race to bring all the American meat onshore before the new tariffs took effect, Mr. Gong says customers will look for alternative suppliers if he tries to pass the tariffs onto restaurants and supermarket chains.
“There’s a high-end portion of 10 per cent: restaurants where people pay thousands of yuan for a steak, who said they still need American beef. But the vast majority say they cannot accept any cost increase,” Mr. Gong said. “If we try to even push 5 or 10 per cent of the cost to them, they will switch to other types of beef.”
Suzhou Huadong, which has annual revenue of about three billion yuan, has suspended any further deliveries from U.S. ports. “We are not going to let them onto the sea if this is not resolved,” Mr. Gong said.
“There’s a point where all nations will say, ‘We can’t keep doing this, so let’s sit down and work out a deal,’ ” said Kevin Tynan, an analyst at Bloomberg Intelligence. “I don’t know when that is, but what China has coming here is more than what we have going there.”
China imported US$130-billion of U.S. goods last year, less than a third of the value of U.S. imports from China. That means in an all-out, tit-for-tat trade war, China may have to retaliate with measures other than tariffs. One of Chinese President Xi Jinping’s biggest weapons could be boycotts of U.S. brands by his country’s legion of consumers.
In earlier conflicts with foreign countries, Chinese citizens inflamed by nationalistic news coverage boycotted high-profile international brands such as Toyota Motor Corp. and Hyundai Motor Co., hurting corporate profits and boosting Chinese leverage.
It may still be early days for this trade war.