German cars, US steak are early trade casualties

China’s retaliatory tariffs on US goods struck just as one of its biggest meat importers was rushing a shipment from California through Shanghai customs. Now Suzhou Huadong Foods Ltd is saddled with a stack of unaffordable American steak.

Only three containers of frozen produce including prime rib and pork loin came through before the new levy slapped as much as 500,000 yuan (€64,000) on each of the remaining half-dozen crates, according to Gong Peng, the importer’s general manager.

US President Donald Trump and Chinese President Xi Jinping

“We have no choice. We have to eat the costs,” Mr Gong said. “We are guaranteed to dramatically lower our purchases of meat from American ranchers.”

Triggering what China calls “the largest trade war in economic history,” the US last week imposed a 25% duty on $34bn (€29bn) of Chinese imports.

Beijing immediately responded with tariffs on US soybeans, meat, and vehicles. Suzhou Huadong, which supplies supermarkets such as Walmart’s Sam’s Club in China, is just one of the early victims.

For automobiles and whiskey makers to companies along the complex global supply chain that defines modern manufacturing, it is a moment of reckoning as they grapple with higher costs and whiplashes from some of the earlier business decisions.

The ability of tariff-hit companies to weather the conflict may partly depend on the amount of stock they managed to import before higher levies kicked in. 

But once those supplies run down, they’ll have to absorb the tariffs or pass them on to customers.

Take Ford Motor and Tesla. Both automakers announced price cuts in China only weeks ago, making their Lincoln and Model S sedans within the reach of more consumers after China lowered tariffs on all foreign vehicle imports to 15%. 

Since last Friday, those same models — if they are made in the US — are subject to a 40% levy.

Tesla raised prices for its Model S and Model X by 150,000 yuan to 250,000 yuan after the additional tariffs, according to a sales representative. That would take the retail price of a Model S to as much as 1.47m yuan. 

Ford said it will refrain, at least for now, from raising prices. The top-of-the-end Lincoln Navigator model costs 1.16m yuan.

BMW and Daimler also face higher costs because they import luxury models to China from their US assembly plants. 

BMW says it won’t be able to absorb the higher levies completely and is calculating the necessary price increases.

Daimler declined to comment beyond saying it aims to offer competitive conditions to buyers.

President Donald Trump is eyeing tariffs on another $16bn of Chinese goods, and he indicated last week that the final total could surpass $500bn. 

With neither side backing down, the prospect of a tax on almost every China-made product entering the US and reprisals by China means many more businesses could come in the cross-hairs.

Hemp Fortex Industries isn’t going to wait. The Chinese maker of clothing and natural fabrics — and a supplier to US and European brands — says it is seeking to move manufacturing outside China.

More than half of the company’s revenue comes from American customers, potentially exposing them to any future US tariffs on China-made goods.

Just Play, a maker of toys for brands like Disney Princess, is also exploring moving production out of China, according to its co-founder Geoffrey Greenberg.

But he’s also worried about the time it will take and how he can replicate the same levels of production at another location.

Chicago-based GMM Nonstick Coatings, which makes non-stick coating for brands including KitchenAid and Black & Decker, said many of its US customers aren’t expanding production in China.

At Suzhou Huadong, the importer that lost its race to bring all the American meat onshore before the new tariffs took effect, Mr Gong says customers will look for alternative suppliers if he tries to pass the tariffs onto restaurants and supermarket chains.

“There’s a high-end portion of 10%: Restaurants where people pay thousands of yuan for a steak, who said they still need American beef. But the vast majority say they cannot accept any cost increase,” Mr Gong said.

If we try to even push 5% or 10% of the cost to them, they will switch to other types of beef.

Copenhagen-based Moller-Maersk, owner of the world’s largest container line, warned that new tariffs “could have a serious negative impact” on global trade and threaten jobs.

Distilled Spirits Council, a US trade group, said a 25% tariff on US whiskeys heading into China could put the brake on $8.9m of annual whiskey exports and hurt Chinese consumers and US farmers.

One of Chinese President Xi Jinping’s biggest weapons could be boycotts of American brands by his country’s legion of consumers.

Bloomberg


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