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Trade War failed to force Businesses Out of China

Bloomberg, December 9, 2019

The U.S.-China trade war has failed to force businesses back to the U.S. from China, as most of them have found ways to avoid or endure the cost of tariffs amid the protracted spat, according to European companies operating in the world’s second-largest economy.

The conflict has forced some large European companies to relocate U.S.-bound production out of China to nearby emerging economies, including Southeast Asia and India, in pursuit of cheap labor and production facilities, the European Union Chamber of Commerce in China said, publishing the results of survey Monday.

That means that companies reroute the origins and destinations of U.S.-or China-bound goods, avoiding the tariff “border,” the chamber said. The results of the September 12-20 survey were from 174 respondents.

“Larger firms are forced to pick up marginal costs for outmanoeuvring the tariffs, while smaller European and American firms end up either passing costs along, eating costs themselves, or changing suppliers,” the report said. “Is this meeting the intended goal of driving investors—particularly larger companies—from the Chinese market back to the U.S.? Clearly not.”

Tariff Futility

The trade group, representing over 1,600 European companies, said that despite some companies fleeing China, about an equal number of them are upping their stake there by moving their supply chains onshore to avoid tariffs altogether.

READ: Vietnam takes ‘Drastic Steps’ on fraudulent exports to U.S.

About 8% of the respondents said they had moved or were moving relevant production out of China as a result of the tariffs, while 6% said they were considering or had already increased investment in China, a sharp increase from the 2% when surveyed in January.

Smaller European firms that can’t leverage global supply chains to avoid the costs have also adapted their businesses to lessen the impact of tariffs, survey results showed.

“That the European companies in China have effectively negated tariff effects in a relatively short space of time only serves to highlight the futility of bilateral tariffs in a global marketplace,” said Joerg Wuttke, president of the trade group.

— With assistance by Lin Zhu

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