The Next Phase of the U.S.-China Trade War Already Sees Businesses Girding. Businesses Are Already Girding for the Next Phase of the U.S.-China Trade War

 

With the prospect of higher tariffs on Chinese goods in the event that Donald Trump wins the presidency, some U.S. companies are taking precautionary moves to stockpile parts and put off expansions.

The perception of the merchandise cost should decline as it transfers through fully from last year's tariffs, but the U.S.-Chinese trade war arguably helped Easy Signs with a factory in Allentown, Pa., that would now be hiring dozens of workers. The company might even have been getting ready to outline plans for a 100-job second plant somewhere out West, with Salt Lake City a contender.

Based in Australia, Easy Signs manufactures banners and marketing installations for corporate events, using huge printers to press its clients' logos and slogans onto rolls of cloth. Its American business has been growing 70 percent a year. But the company is putting off an expansion.

Its fabric markers appear on Chinese-made aluminum stands. Today those goods face a thicket of tariffs up to 365 percent high in a policy enacted under former President Donald J. Trump and kept in place by the Biden administration in the name of protecting American industry from Chinese government subsidies.

The costs of imported components could rise even more in November should Mr. Trump win November's presidential election and follow through on his threat to add a tariff of 60 percent or more on all Chinese goods, and 10 percent to all imports.

"That's definitely a scary concept," said Andy Fryer, co-founder of Easy Signs. "The whole feasibility goes out the window."

In interviews with two dozen American manufacturers, retailers and shipping agents, many said they were holding off investments and expansion while the future of tariffs on imported products and parts — especially those shipped from China — remained in doubt. Many of those people said they anticipate the trade hostilities with China to escalate if Vice President Kamala Harris were to win, increasing the cost of components used by American businesses.

"Companies have kind of decided that, whatever government is coming into power, these tariffs on China are going to continue to get higher," said Mandeep Singh, whose business, Via Indigos in Cincinnati, links American factories with suppliers in India.

Mr. Singh said he had recently been approached by a company manufacturing air purifiers that was desperate to shift production from China to India. "They want us to take care of the entire product range," he said. "They would like to find a solution earlier than later."

Mr. Trump levied broad tariffs on imports from China starting in 2018. President Biden has continued that policy, imposing tariffs on new categories of Chinese goods, including electric vehicles and solar cells.

Both administrations said the levies were intended to spur the return of factory jobs to the United States. But even as tariffs on Chinese imports have pressured manufacturers and retailers to reduce dependence on China, they have usually caused production to shift to other low-wage countries like Mexico, Vietnam and India.

Some businesses are stockpiling inventory by increasing imports, according to an analysis published last week by Project44, a company that sells technology used by businesses to manage their supply chains. In June and July — the peak time for retailers amassing inventory for the holiday season — the volume of ocean shipments reaching the United States from China rose more than 4 percent from the previous year, according to the report.

Other companies are riding out the current confusion, inured to the unrelenting chaos in the supply chain. The pandemic upended global manufacturing and shipping, yielding floating traffic jams off ports and product shortages.

Strikes on vessels by Houthi rebels in Yemen, acting in solidarity with Palestinians in Gaza, have made the Suez Canal all but off limits, and shipping prices are going through the roof. A drought has limited traffic through the Panama Canal. Rail workers in Canada are threatening to strike, as are dockworkers at ports on the East Coast and the Gulf of Mexico.

"My approach is wait and see, and then move as fast as we can if it does happen," said Sam Shackleton, whose Boston e-commerce business, Cross Path Capital, relies on Chinese factories to produce home décor and garden design products that it sells on Amazon.

"We are busy with a lot of other aspects of running the business," he said. "Moving around pieces on a board falls down the priority list even if we could argue that it's existential."

Many importers are counting on the hope that Mr. Trump would stop short of imposing 60 percent tariffs because that would sow chaos in the economy, menace the stock market, and lift prices to uncomfortable levels.

"Nobody I see is planning for it," says Sara Dandan, founder of FourOneOne, a Chicago business that books shipping containers for importers. "It comes down to an American consumer thing. We're used to being able to go to Walmart and buy a $2 spatula."

But Mr. Trump has time and again breached traditional norms. Eight years ago, trade experts scoffed at his vows to add across-the-board tariffs to Chinese imports.

With such false reassurances as a guide, some companies are concerned enough by the tariff talk to make contingency plans.

"You have to take it seriously," said Chris Taylor, the chief executive of GridStor, a Portland, Ore., company developing energy storage projects. "I think you would ignore that at your peril."

GridStor had been placing early orders for batteries in a project planned for the Houston area. Mr. Taylor has been prodding his suppliers to move faster to set up factory operations in the United States or nearby to limit dependence on Asia. "In every meeting, that conversation comes up," he said.

Larger firms are socking away additional inventory of parts and finished goods, absorbing higher warehousing and insurance costs as a hedge against further tariff increases. That's according to Ara Ohanian, chief executive of Netstock, which designs software used by companies to manage their supply chains. His customers have been shifting orders to Mexico to avoid tariffs on Chinese imports.

However, Chinese companies have set up factories in Mexico, using the North American trade agreement to gain duty-free access to the United States. Some American importers assume that a second Trump term would halt that arrangement. Auto companies are especially concerned, given that Mexico has become a major supplier of parts for automotive plants in the United States.

"Everybody is getting skittish," said Ross George, a supply chain consultant focused on the auto industry. "They say: 'We know we are buying from a Chinese company, but it says, "Made in Mexico." It's not quite as clear cut as we'd like.'"

The solar industry is particularly exposed to an escalating trade war, partly due to its high dependency on cells imported from Southeast Asia. In recent years, Chinese companies have established plants in Malaysia, Thailand, and Vietnam to avoid American duties on exports from China. That has prompted fresh tariffs on exports from those countries, a trend expected to broaden if Mr. Trump returns to office.

Even the threat of more trade barriers is slowing the rise of solar power, said Mike Hall, who runs Anza, a company that matches buyers and sellers of solar energy gear. "It makes things more expensive and creates uncertainty and fear, " he said.

Easy Signs, based in Pennsylvania, recently received two shipping containers full of aluminum stands at the Port of Philadelphia. Rather than pay the extra duties, it declined to accept them, instead paying extra shipping costs to return the cargo back to its warehouse in Australia.

But one key area of growth consoles the company. "We're going to do a lot of election signs," said Amanda Strait, the factory's operations manager.