By Karen Gerwitz, President, World Trade Center Denver
No one will argue that the U.S. deserves fair trade treatment with China or any other trading partner in the world. Given that fair treatment, U.S. manufacturers can compete with anyone in the world and likely come out on top based on innovation, quality and reliability. Since the U.S. has experienced legitimate or alleged (depending on who you talk to) predatory trade practices for decades, such as infringement of intellectual property, currency manipulation, and government subsidies, it is easy to see why the Trump Administration is playing hardball with our top trade competitor, China.
The unfortunate thing is that tariffs are the Administration’s all-purpose foreign policy tool to address everything from theft of IP and unfair business practices to currency manipulation and trade surpluses. Tariffs are even being used to boost domestic industries, like steel and aluminum, as well as stem the flow of migrants into the U.S.
Tariffs have been used as far back as 1789, but they have been deemed by economists and leaders on both sides of the aisle to no longer be effective in modifying the behavior of our trade partners. This is mainly because the burdens of tariffs are borne by the American consumers as well as our manufacturers or consumer goods companies. Even Colorado’s largest manufacturers, who can likely absorb the hit, are advocating against the use of tariffs. “The proposed changes to tariffs create disproportionate harm to U.S. individuals, companies, and the communities in which we operate. These tariffs would also result in a substantial loss of high-paying ancillary jobs in transportation, warehousing, service, and other industries,” said John Hayes, Ball Corporation.
Today’s trade war will need a new approach and a more strategic array of tools to win:
- Showing strength in numbers and banning together with other trading partners and the WTO to address the IP theft and potential currency manipulation is one proven strategy;
- Entering into free trade agreements with China’s competing countries to strengthen competitiveness is another;
- Negotiating a trade agreement with China itself, may not be in the cards today, but should be something we move toward to affect the changes we seek and to boost global trade and local economies in ways we haven’t experienced before.
In the meantime, we need to support small businesses in Colorado in handling the tariffs that are reality today. Many are calling the WTC Denver daily to find ways to mitigate increasing tariffs that are impacting bottom lines and making Colorado firms less competitive on the global stage. There are a number of tariff mitigating strategies the WTC Denver can advise Colorado manufacturers on, such as:
- Duty Drawback to reclaim up to 99% of the duties paid on components that are exported
- Tariff Engineering Strategy: adjustments to the production process to obtain a more favorable tariff classification
- Tariff Exemption Requests: to determine the process and due dates and eligibility to apply for tariff exemption status
- Alternative Entry Procedures: to avoid or defer duties of In-Bond Shipments of Foreign Trade Zones
Of course, many importers have found themselves changing the country of manufacture for their goods out of desperation to avoid the 301 Tariffs. They have moved to places like Mexico and Indonesia, India and Eastern Europe. They have found comparable quality, reliable supply chains and a willingness to expand on the relationships that developed as a necessity from a crisis. I would be surprised if many Chinese vendors were able to recover all or even most of these transplanted relationships without a considerable reconsideration of their pricing.
For a case study of mitigating tariff strategies featuring Colorado firm Popsockets with the support of their Freight Forwarder, Air Tiger Express, we invite you to attend a roundtable discussion at the WTC Denver on August 21st at 9:00 a.m. For more details and to register, visit https://www.wtcdenver.org/upcomingevents/
The World Trade Center Denver is the premier resource and trade association supporting manufacturers throughout the Rocky Mountain Region in expanding business globally. As an active member of the World Trade Centers Association, with 330 centers around the world in 100 countries, the WTCA is the largest trade association in the world. For information on how the World Trade Center Denver can support your firm’s global expansion, check out the website at www.wtcdenver.org. Or call the help desk at: 1.833.ASK.WTCD (275.9823)
