'Fancy footwork': China has reportedly figured out how to beat Trump's tariff threat
China may be able to sidestep Donald Trump's tariffs just as easily as the last time he slapped them on the trade rival.
The once and future president imposed tariffs on Chinese bicycles in 2018, but manufacturers just moved their final assembly operations to facilities in Cambodia, India, Malaysia, Taiwan and Vietnam — using parts mostly made in China — to build bikes they could export directly to the U.S. without paying the 25 percent tariff, reported the New York Times.
“The net effect of what’s going on with these tariffs is that Chinese factories in China are setting up Chinese factories in other countries,” said Arnold Kamler, then the chief executive of the bike maker Kent International.
Kent imports some bikes from China and makes others in South Carolina, and Kamler said that pushing Chinese factories into other countries resulted in additional costs for both companies and consumers without boosting U.S. manufacturing.
“There’s no real gain here,” Kamler said. “It’s very inflationary.”
Some industries that compete with cheap Chinese products, such as apparel and cabinet makers, say Trump's tariffs helped them, but they only reshuffled manufacturing operations for many other industries without any benefit to American companies.
“It reduces bilateral trade; it doesn’t impact global trade,” said Brad Setser, an economist and senior fellow at the Council on Foreign Relations.
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Trump and his advisers are looking at the back doors China's using to get its products into the U.S., and the president-elect has proposed a universal 60 percent tariff on U.S. imports from China and a “universal” tariff of 10 to 20 percent on goods from other countries, especially Mexico.
“Seize the opportunity in Mexico and seize the market,” read one online Chinese-language ad anticipating the tariffs. “Mexico is adjacent to the United States, and the North American Free Trade Agreement (U.S.M.C.A.) allows companies to easily access the North American market.”
Chinese companies sometimes lower the value of their imports by stripping out certain costs, such as payments for intellectual property, royalties, brand or research and development, and shifting those to other global subsidiaries to pay a lower tariff, but it's not clear how much that has reduced the recorded value of trade between the two nations.
“They did some fancy footwork within the customs regulations that impacts the value they declared for the products,” said Lynlee Brown, a partner in Ernst & Young’s global trade practice.