What is a Trade War and What Could it Mean to My Sourcing in China?

Mar 25, 2018

Donald Trump, president of the USA has recently ignited a tit-for-tat trade war among nations, most importantly between the two largest economies in the world, the USA and China.

So what is a trade war and what does it mean to my business?

A trade war is the attacks between nations on each other’s trade with duties and/or quotas.  Tariffs are raised causing the other to retaliate.  This can hurt the other nation’s economy and lead to many negative consequences.  It is often referred to as protectionism as opposed to free trade. A trade war is good for no body in the long run. A trade war back in the early part of the 20th century was believe to be the cause a deepened Great Depression where international trade fell of a cliff.  A not far away example is a raise in steel tariifs in 2002. Gross domestic product (GDP) declined by $30.4 million. The U.S. lost about 200,000 jobs. It was also ruled illegal by the World Trade Organization.

Following the US’ announcement of their imposing tariffs raise on trade value of $60bn, China immediately retaliated by raising tariffs on wine, fruit, steel pipe.

You may be be directly affected by these raise of tariff yet. However, if you are in the US you may get higher prices as a consumer any time soon.  As the nations continue to expand the ranges of products in the trade war. The product that you are working on with China may be imposed with penalty tariff. You may become a lot competitive in your home market. Worse you may just run out of business if this product in question is the most important item for you.

No one is left alone in such trade war. In the age of protectionism, businesses should try to diversify their businesses. If one range gets affected by trade war, you should have back up ranges that still work.

Work around tactics may exist for certain protectionism measures, knocked down and assembly being one of them. Companies like Sourcing Spectrum who have lived through multiple rise and fall of trade wars are the best partners for you in such circumstances as they know how to exhaust the possible ways to minimize the impact.