The China Tariffs and Tier 2 and 3 Suppliers
The trade war between China and the US began in July 2018 with the US imposing tariffs on Chinese products. Several courses of discussions have taken place between the trade representatives of both nations, without any settlement anticipated soon. The current state of the negotiations is stalled as leaders of both countries do not wish to seem vulnerable and have established “cold war like” camps.
In the meantime, American Tier 2 and 3 suppliers are actively thinking over their China policy. While current tariff politics has put immense pressure on Tier 2 and Tier 3 suppliers doing business in China, they had already been dealing with the other challenges. These challenges include the increasing cost of labor, higher standards in terms of compliance, more competition from state-controlled entities (SOEs), and less market access. American trade negotiators were addressing these challenges with demands that China limits SOEs and eliminate the market access limitations on the private sector.
Both tariff and non-tariff barriers cause cost increase to material, supplies, and products, making it difficult for Tier 2 and Tier 3 suppliers from both countries to do business in each others markets. In addition to raising costs for Tier 2 and 3 manufacturers, the tariffs have begun to affect retailers and consumers. Experts anticipate that if the trade war is ongoing and prices continue to rise, production volume and revenues will decrease. The results could be companies shrinking, going out of business, and increasing rates of unemployment. Both nations will not be capable of maintaining the trade war without being affected, and if the situation persists, it could result in a new global recession.