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Restore 200 Billion US Dollars Tariff Hearings: Chinese And American Companies Have Different Ideas
- Sep 13, 2018 -

Chinese and American companies have different "defense ideas"

Although the probability of success in obtaining a tariff exemption through a hearing is low, there will occasionally be some lucky ones. Zhejiang Medicine, which had successfully defended the $36 billion hearing earlier, is an example. Many Chinese representatives who participated in the hearing believed that Chinese-funded enterprises should not take the initiative to give up such opportunities. On the other hand, the US representatives who are more enriched in the "fight experience" may provide some different ideas for the Chinese representatives.

“American companies are better at telling stories. American industry representatives will more contact the industry, the company itself and the region where they are located, and explore the characteristics from the details.” Zheng Cheng told the 21st Century Business Report that they would analyze the industry’s improvement. The role of local community income and employment levels; or stand on the standpoint of American consumers to explain their love for the product, or even rely on it; or emphasize that the company makes it to US government agencies, law enforcement agencies, and even the military Contributions; or enumerate the industry's participation in public welfare such as medical care, education, and veterans' placement in the United States.

"Most of the Chinese representatives will start from a macro perspective, such as discussing the conflict between the US taxation policy and the WTO obligations assumed by the United States under the WTO framework; and, for example, in the global perspective of international trade, questioning US trade policy. The interference caused by the stability of maintaining the international trade order is even destroyed." Zheng Cheng said.

In addition, Yi Bo pointed out to reporters that according to his observation at the hearing site, American companies would hire a lobbying company located in K Street, Washington, DC to lobby the government for the purpose of removing the tax code product. The speeches of the Chinese representatives are generally read out according to the pre-written manuscripts. They do not point out the specific tariff codes. They also rarely want to hire a lobbying company to conduct legal public relations and lobbying for them.

Sun Lei lawyer suggested that Chinese stakeholders, especially lawyers, should not only focus on the violation of the US 301 investigation or taxation itself, because the most fundamental difference between law and other norms is the law. Forced efforts are required to ensure implementation. Without this coercive force, defending the perpetrator from the legal point of view will not produce legal effects. Therefore, lawyers should explore the part of the rules with mandatory guarantees to protect the interests of the parties.

After the decision of the 200 billion U.S. dollar taxation measure, the US will also set a specific product exclusion application procedure based on the previous $50 billion taxation precedent. Chinese companies and various stakeholders can propose product exclusion to USTR based on their product characteristics. The application and the way to lobby other authorities to protect their legitimate trade interests." Sun Lei said.

Short-term research rules for long-term self-improvement

In response to the US plan to impose tariffs on 200 billion US dollars of Chinese goods, the spokesman of the Ministry of Commerce of China said on September 6 that if the US is willing to go its own way, China will take necessary counter measures according to the US actions. After the US announced that it intends to impose tariffs on China's 200 billion US dollars of imported goods, China announced on August 3 that it had counter-measures against the import of about 60 billion US dollars of goods imported from the United States. The list of commodities has been announced.

Gao pointed out that for some time, the US has seriously violated the WTO rules and continuously introduced unilateral measures to continuously escalate Sino-US trade frictions, which not only harmed the interests of Chinese and American companies and consumers, but also damaged the global industrial chain and value chain. Safety. He said that China will pay close attention to the various effects brought about by the increase of tariffs and take effective measures to help Chinese and foreign-funded enterprises operating in China overcome difficulties. China has the confidence, ability and means to maintain the steady and healthy development of the Chinese economy.

It is understood that the China Council for the Promotion of International Trade and its local CCPIT have conducted research on the impact of Sino-US trade friction on foreign trade enterprises in many places. Enterprises generally reflect that the addition of tariff lists has less impact on irreplaceable, high-quality and competitive products, but if trade frictions continue to escalate and the US dollar to the renminbi exchange rate volatility, its impact is difficult to predict.

In the interview, the reporter found that in the long-term response to anti-dumping and other trade protection policies, some large export enterprises have accumulated more experience in dealing with the situation, and have a clearer response to the US tariff threat. However, SMEs with even lower risk tolerance still hold the attitude of “reviewing” and lack preparations for response measures.

“European companies with high dependence on the US market, companies with strong product alternatives, and companies that cannot change supply chain arrangements in the short term have a greater impact,” said ERIC ZHOU, managing partner of KPMG China’s trade and customs services. . He participated in a seminar organized by the American Chamber of Commerce in China last month. The theme is how companies should understand the impact of the adjustment of tariff rules in China and the United States and its countermeasures.

In the short-term, Ipo recommends that companies can actively study the tariff numbers in the tax collection list because US Customs imposes a 25% tariff on the tariff number in the tax collection list issued by the US Trade Representative Office. Or the tariff code of the intermediate product is subject to tariffs, but the tariff number of the finished product is not subject to tariffs, so the enterprise can produce finished goods and export to the United States by replacing the tariff code.

In addition, companies can also study US rules of origin because tariffs are imposed on products originating in China. If Chinese companies can assemble products in a third country and export to the United States in the name of the country, they can also avoid products being taxed by US Customs.

In the long run, domestic companies need to do both internal and external repairs, step up structural adjustments and upgrades, and improve the competitiveness of enterprises and products around the world.

Liu Ying, a researcher at the Chongyang Financial Research Institute of Renmin University of China, told the 21st Century Business Herald that China currently has many industrial parks in Northeast Asia, Southeast Asia, Central Asia, Africa, and especially in the “Belt and Road” related areas. Providing a number of preferential policies, including taxation, foreign trade enterprises can respond by shifting the market, while small and medium-sized enterprises with low anti-risk ability can consider "bringing groups to warm up" and achieve "going out."

Regarding the exchange rate fluctuations that foreign trade companies are worried about, Liu Ying suggested that foreign trade enterprises should strengthen the management of foreign exchange risks and strengthen the use of financial instruments to prevent and control foreign exchange risks. The pressure of RMB depreciation has been high in recent times. Liu Ying believes that this will help reduce the pressure brought by tariffs for foreign trade enterprises that export.

High-level manufacturing will remain in China

Ten years ago, when Ke Lishun joined Procon Pacific, 100% of the company's products were produced in Changzhou, Jiangsu. With the increase in domestic labor costs, Procon Pacific's production began to spread to Shandong, Chongqing, and even India and Vietnam. At present, 70% of the company's production capacity is in China, 20% has been transferred to India, and 10% is in Vietnam.

The escalation of Sino-US trade friction has caused many practitioners to feel pressure. However, many interviewees believe that the "large-scale withdrawal of foreign capital" is untenable. When considering the supply chain, enterprises must consider the transfer cost, product market, production efficiency and other factors in addition to tariffs. Transferring production capacity is not a decision that can be easily made in the short term.

In the view of Keli Shun, China still has irreplaceable places in the global supply chain, such as first-class infrastructure including electricity, roads, railways and ports, such as stable and mature experienced factories and customs. Therefore, international trade in China is safe and predictable, while Chinese factories can improve efficiency and reduce costs through lean manufacturing processes such as automation and robotics.

For Procon Pacific, there are currently three major problems in production in China: increased labor costs, labor shortages, and EPA compliance costs, two of which are directly related to human resources. “A skilled sewing worker’s monthly salary was 1,500 yuan 10 years ago, doubled to 3,000 yuan five years ago, and now doubled to 6,000 yuan.” Ke Lishun pointed out to reporters that labor costs have accounted for about 40% of product costs. This is obviously a variable worthy of serious consideration. What's more, even if they are willing to pay 6,000 yuan in wages, there is still a shortage of workers in Jiangsu and Shandong, which has forced companies to shift production to Southeast Asia or other parts of Asia.

“Most of our products will remain in China, especially for products with higher technology and more complex processes. Products for the Chinese market will obviously stay here. In addition, orders from multiple suppliers will be combined into one. The container model can still not be copied to places outside China, and these batches of products will remain in China. As for the products with lower profit margins, they will be transferred to lower-cost places such as India.” Ke Lishun told reporters that the advanced package Produced in China, the intermediate package is in Vietnam, and the low-level package is in India. "This is our plan."

It is not only Procon Pacific that values China's supply chain. The 150 industry associations in the United States recently sent a letter to the US trade representative, calling for not to impose more tariffs on Chinese exports to the United States, and warned that this would seriously damage the global supply chain and harm the interests of US companies and consumers. These representatives come from a variety of supply chain stakeholders such as US manufacturers, farmers, retailers, technology companies, natural gas and oil companies, importers, and exporters.

The joint letter pointed out that the global supply chain is very complicated. It often takes many years for US companies to find partners that meet production standards, scale and cost requirements. The US government “overestimates” US companies to shift supply chains out of China, American farmers and fishermen. Find the ability to replace China's export market.

A July report released by the American Chamber of Commerce in Shanghai pointed out that China is still an indispensable part of the global supply chain. 81% of the respondents indicated that they did not transfer their investment in China last year to other countries. Only a few companies said that Southeast Asia, the United States and the Indian subcontinent are the first choice for their investment. Although the labor costs of operations in China are gradually rising, in the face of a number of uncertainties, such as changes in the target of US anti-dumping duties, and the possibility that the United States may impose tariffs on other regions, companies remain cautious about large-scale capacity cross-border transfers. .

“The essence of transferring production capacity is to change the origin by changing the source of raw materials, usually in the medium and long term. It will be subject to the quality of raw materials, flexibility of supply chain arrangements, pricing of related transactions, function and risk adjustment, international taxation, etc. And so on a variety of tax and non-tax factors." Zhou Zhongshan said.

At the annual media meeting, Lu Ting, China's chief economist at Nomura Securities, responded to a reporter's question and said that the impact on Sino-US trade friction cannot be underestimated or overestimated. At present, the current impact on China's GDP is not too big, and it does not need to be too pessimistic; but pay attention to the issue of time dimension. From a production perspective, if the tariff lasts for a long time, the company may consider reshaping the supply chain and even moving the factory to another. Countries and US importers also have higher enthusiasm to go to other countries to find alternatives. In addition, the long duration will affect the company's new investment confidence, and the impact will be far more profound than the data shows. As Zhou Xiaochuan, the former central bank governor, reminded, from the perspective of economic scale, the direct impact of tariffs is not large, but it may have an impact on market confidence. In all sorts of turmoil about trade frictions, it is imperative to stabilize corporate confidence. Chen Wenling, chief economist of China International Economic Exchange Center, also said that in order to stabilize all export enterprises, do not let enterprises panic, close, lay off employees, and minimize the negative impact on enterprises, especially psychological impact.