On-off trade tariffs wreak havoc on US company planning

Earlier this month, US President Donald Trump unexpectedly put off new 10 per cent tariffs on about half of US$300 billion of targeted Chinese imports until December 15. ― Reuters pic
Earlier this month, US President Donald Trump unexpectedly put off new 10 per cent tariffs on about half of US$300 billion of targeted imports until December 15. ― Reuters pic

CHICAGO, Aug 24 ― Win Cramer thought his company was out of the firing line in the escalating Sino-US trade war after his “Made-in-” wireless headphones, speakers and earbuds were taken off Washington’s tariff list a year ago.

Little did the JLab Audio chief executive know that nine months later those products would again be targeted, posing an even greater risk to his California-based company.

Earlier this month, US President Donald Trump unexpectedly put off new 10 per cent tariffs on about half of US$300 billion (RM1.25 trillion) of targeted Chinese imports until December 15. But JLab’s shipments will be subjected to the tariffs starting September 1.

Trump’s push to rewrite global trade rules has upended supply chains and inflated costs for many US companies. His tariff threats, also aimed at forcing American companies to move operations back home, have complicated planning for those with suppliers or manufacturing in China.



Yesterday, Trump in a tweet “ordered” US companies to exit China after Beijing unveiled retaliatory tariffs on US$75 billion in US goods, throwing a new twist into the bitter trade war between the world’s two largest .

After the tariff reprieve in August 2018, JLab poured US$1 million into new product development and spent another US$500,000 to expand its US workforce by 20 per cent. The investment, one of the biggest for the mid-sized company that was founded in 2005, is now at risk.

“We invested because we felt confident tariffs would not be put back on these products,” Cramer said in an interview. “Perhaps, it would have been better if, last year, they hadn’t removed us from the tariff list.”

The US$550 billion US chemical industry is also finding itself in a pickle after 111 products that it imports from China are on the latest tariff list. They had been exempted in August 2018 on grounds that they were essential for US manufacturing and agriculture.

The about-turn has frustrated chemical manufacturers, said Ed Brzytwa, a director at the American Chemical Council (ACC). “There is no explanation from the administration why they flip-flop like this. It is very confusing to us.”

Chemical manufacturers are spending copious resources dealing with tariffs rather than on product innovation and research and development, Brzytwa said, adding that some companies have had to cut travel budgets.

An official at the office of US Trade Representative declined to comment beyond saying that the products, covered in the latest round of tariffs, were not included in the previous duty increases.

Sitting tight



With no end seen to the trade war, companies are going slow on new spending until future US trade policy becomes clearer.

Business investment shrank in the second quarter for the first time since 2016, Commerce Department data showed. US business confidence has sunk to the lowest in nearly three years, according to a OECD survey.

“We need to get a trade deal resolved to get some confidence back in this market,” Dow Inc CEO James Fitterling told investors recently. Until then, the chemical producer will keep capital spending “tight,” he noted.

Caterpillar Inc said last month its customers had turned cautious about making large capital expenditures.

JLab has cancelled hiring plans for the United States.

Cramer is meeting with retailers such as Best Buy, Target Corp and Walmart Inc, imploring them to accept tariff-induced price hikes for his products. Similar talks in 2018 were suspended after JLab’s products got a reprieve.

Since price increases alone will not fully offset the tariffs, JLab is reviewing all options to cut costs ― from coffee suppliers and cleaners to marketing and advertising plans ― for the second half of the year.

Invest overseas



To reduce its reliance on China, JLab will start production in in . But with the Trump administration’s focus on correcting trade imbalances, Cramer worries that the Southeast Asian nation could be next in the line of fire.

US Trade Representative Robert Lighthizer last month warned Hanoi over the “unsustainable” bilateral trade gap.

The US trade deficit with Vietnam was US$39.5 billion in 2018 and is expected to widen further as many American companies move production into the country to avoid the trade war with China.

JLab also has fast-tracked plans to expand overseas. Sales abroad currently account for 10 per cent of its revenues.

“As things stand today, we are not hiring in the US anymore,” Cramer said. “But I am hiring overseas and creating jobs in Europe, APAC and China because I feel confident that those markets will provide us some stability.”

Brzytwa of ACC said some of chemical producers are reviewing their US investment plans and are considering moving production overseas.

The United States has a large and growing trade surplus in industrial chemicals. The industry’s exports were US$140 billion in 2018, accounting for 10 per cent of all US goods exports.

To grow, Brzytwa says, US chemical makers need China, which is not just their third-largest exports market, but also a vital source for many inputs.



“We are worried about our market access closing in other parts of the world,” he said.

Policy by tweet

Apart from the flip-flop on tariffs, companies are troubled by how the administration conducts and communicates trade policy.

Frequent twists and turns are forcing companies adapt and re-adapt at frequent intervals. Trump’s penchant for announcing his decisions on Twitter also leaves them little time to prepare for changes.

Cramer and other company heads said they have little choice but to keep monitoring Trump’s tweets to find out the latest news on trade relations with China.

In May, Cramer was getting ready to start the hiring process for three new employees in his California and Texas offices when he learnt via Trump’s tweets that the trade talks with China had broken down and a new round of tariffs was in the offing. After the administration put his products on the tariff list, the hiring process was put on hold.

He revived the process when Trump in late June declared a truce with China. But as he began interviewing job candidates, Trump tweeted on August 1 that the tariffs were back in play.

If all else fails, Cramer may have to consider layoffs but the fluid US trade policy makes it tough to decide.

“I am not motivated to just let people go on a whim, knowing that a tweet on Tuesday can come out and say ‘you are fine, don’t worry about it’,” Cramer said. “It is outrageous.” ― Reuters

Source: The Malay Mail Online





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