"If countries will not make fair deals with us, they will be ‘Tariffed!’"

This was announced by U.S. President Trump on 17.09.2018 via Twitter. The US introduces further safeguard tariffs on goods from China - the importance for the EU economy.

On 24 September 2018, the USA extended for the second time the protective duties in place since 6 July 2018 to imports of goods from the People's Republic of China. The current expansion concerns almost 6,000 commodity tariff lines, the import value of which totals USD 200 billion. The two previous measures of 6 July 2018 and 23 August 2018 concerned goods with a total value of USD 50 billion. While the safeguard tariffs so far amounted to 25%, the new measure is initially subject to an additional tariff rate of 10%. In the report of the Office of the United States Trade Representative, the USA accuses China of forcing technology transfer to China by imposing requirements on joint ventures and direct investments on the one hand and of gaining access to US technology by arranging and facilitating systematic investments in US companies on the other. Finally, China supported cyber attacks on commercial computer networks in the US to gain unauthorized access to commercially valuable business information.

In many cases, the US safeguard tariffs against China pose a major challenge for the supply chain management of EU companies, as deliveries to international markets, including the US market, are often made directly from the production sites in China. Companies can of course respond to the US protective tariffs by relocating production, for example, to countries with low cost levels or to countries with free trade agreements with the USA. Whether such a measure makes economic sense, however, depends in any case on how long the USA will maintain the protective tariffs against China, and this cannot be estimated at present.

For its part, the Chinese leadership has reacted to the US measure by imposing additional duties on imports equivalent to USD 60 billion. The fact that the Chinese measures lag behind the US measures in terms of volume is due to the asymmetry of trade flows. In the absence of sufficient imports from the USA to China, China cannot "counter" accordingly. It is feared that if the situation does not ease, China will seek other means to assert its interests. In the first instance, export duties (or even bans) on tools and equipment should be considered in order to prevent relocation of production or the reduction of exports of rare earths. As early as 2010, China had already shown its muscle with a similar manoeuvre against the USA.

Another consequence of the trade dispute between the USA and China and other countries (especially India) are protectionist measures taken by third countries whose markets are affected by changing commodity flows. This includes the EU. Concerned about a flooding of the EU market by cheap steel and cheap aluminium, especially from China and India, the EU Commission has issued Regulation (EU) 2018/1013 with effect from 19 July 2018, which imposes additional duties of 25% on imports of certain steel and aluminium products from China and other countries. The measure identified as "provisional" is supposed to exist until the end of the year. The additional duty is supposed to apply only if imports exceed the average imports of the last three years for that period. Until then, importers will be able to benefit from corresponding tariff quotas on a first come, first served basis.

Internationally active companies must closely monitor the evolution of the global trade dispute so that they can make adjustments to the supply chain and not make investment decisions they regret after the first import.

Dr Hartmut Henninger, Attorney at law

December 2018