It’s the middle of Year 2 of what Joseph Brubaker calls “the never-ending hot topic.”
It’s the U.S.-China trade conflict, chock full of multiple rounds of tariffs, delays in implementing those tariffs, escalations in the severity of the tariffs, uncertainty about the trade war outcome, and U.S. companies considering complex approaches in order to continue trading with China while the tariff wars occur.
“It’s been a very, very eventful two years,” Brubaker, an international trade attorney at Kirton McKonkie, said during a seminar last week on international trade law.
“It is a challenging, difficult time, and there is no question about that,” Miles Hansen, president and CEO of World Trade Center Utah (WTC Utah), told the crowd at the seminar, presented by WTC Utah, Kirton McConkie and the Utah State Bar. “None of us have a crystal ball. None of us knows where this is going.”
Where it goes could have a significant impact on Utah’s economy. On the export side alone, WTC Utah has said that Utah shipped nearly $577 million in goods to China in 2018 despite the figure slipping from prior years. In the second quarter of 2018, China was the second-ranked export destination for Utah information technology and software products, second-ranked for outdoor recreation, third-ranked for aerospace and defense, and fourth-ranked for life sciences.
So far, four rounds of U.S. tariffs have been announced. The first two targeted products related to concerns the U.S. has regarding trade with China, including those related to inadequate intellectual property protection for U.S. companies having operations in China and U.S. companies being forced to provide innovative ideas to Chinese companies.
Tariffs on the first three lists of products will increase to 30 percent by Oct. 1. Half of the fourth list’s implementation — at 15 percent tariffs — has been delayed until Dec. 15. The range of products has grown with each new list. Among the few, narrow exceptions on the fourth list are frozen fish fillets, cranes and child safety seats.
China, in response, has produced its own retaliatory tariffs.
“The idea was, because we buy more from the Chinese than China buys from us, we can just increase tariffs on more and more things and China can’t keep up,” Brubaker said.
The trade war tone has changed, he said, from the U.S. wanting to just protect its intellectual property to seeing China as a strategic competitor in the market for every product. “And when you play football against each other, you don’t help the other team win — at all,” he said. “I think that may be an extreme statement, but that’s the tone that you’re hearing now.”
Add to that Pres. Donald Trump in August ordering U.S. companies “to immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA.”
Some estimates of the tariff war impact show that it will cost Americans $508 per person in higher product costs. Brubaker described tariff impacts as “an awful tax for small and medium-sized businesses. He’s waging this war with small and medium businesses’ money.”
What can Utah businesses do? Brubaker listed several options, including lobbying against the imposition of the tariffs, avoiding tariffs by shipping containers in and out of either Mexico or Canada for product orders under $800, seeking exclusions from tariffs — carve-outs in the third round include kayak paddles, pet cages and inflatable boats and canoes — and “operational engineering,” which Brubaker said would comply with Pres. Trump’s call for companies to “go build it somewhere else, or if you can’t build it somewhere else, build half of it somewhere else and then you can declare it’s a different country.”
How will the trade war end? Some people believe the tariff component will eventually be solved but conflicts related to currency, company purchasing and company information will remain, Brubaker said.
“My general thinking is … I think the first three lists of the 25-soon-to-be-30 percent [tariffs] aren’t going anywhere anytime soon. I think List 4, the two parts, will be used as negotiating chips to extend the negotiation.”
One audience member suggested that the tariff war will subside because both the U.S. and China are being hurt by them.
In prefacing the seminar, Hansen seemed optimistic about Utah’s position in trade with China because of activities that have strengthened the ties between the two.
“Just in the past year, even though the relationship with China nationally has been very tense, we have had very, very strong, positive engagement with Chinese officials here in Utah,” he said.
Among the activities are a trade delegation to China last October, several visits to Utah by Chinese delegations since then, and a trade and investment forum this past spring.
“As a state, we don’t do national security. We don’t do foreign policy. What we do do are people-to-people ties, growing and expanding these relationships in a way that they are beneficial for everybody,” Hansen said.
“Most Americans believe these people-to-people ties are important all of the time, but maybe more important when there are periods of increased tension at the geopolitical level.” Those relationships, he said, “make it easier to find common-sense solutions to the challenges that exist.”
Those relationships have, for example, been beneficial when Utah companies have run into trouble or needed to overcome challenges, and Utah’s contacts in the Chinese government have been helpful in resolving those issues, Hansen said.
“Yes, there are some very severe tensions and challenges that exist at the national level as both countries work hard to try to create a more-efficient, fair, sustainable framework for strong trade between our two countries,” he said. “At the same time, as a state, we’ve been building very strong relationships, and we want to continue to use those relationships to benefit Utah companies.”