Jun 27, 2024

‘Summer Davos’ Highlights Corporate Anxiety Over Global Tariffs

Katia Dmitrieva and Lucille Liu, Bloomberg News

A tug boat assists a container ship to its berth at the Port of Long Beach in Long Beach, California, US, on Monday, June 17, 2024. Inflation looks to be easing across the developed world, except for one glaring pocket of hot prices: cargo costs on the high seas. Spot rates for full-size shipping containers to the US and Europe from Asia rose again in the most recent data. Photographer: Tim Rue/Bloomberg , Bloomberg

(Bloomberg) --

Global trade tariffs were top of mind for attendees at the event known as Summer Davos in China this week, with companies rethinking their strategies to mitigate the impact of tensions between China and the West.

Chinese Premier Li Qiang led the call for trade openness and decried protectionism, saying decoupling would only drag the world into a “destructive spiral.” His comments, made at the World Economic Forum event in Dalian, come as Chinese firms start to face more trade barriers, particularly from the US, Europe and potentially Canada.

It’s a stark reminder of how precarious trade has become after years of supply chains rapidly rearranging due to the pandemic and US-China trade war. The potential for escalation and additional tariffs threaten to exacerbate challenges for business owners globally, who face higher prices, longer wait times for parts and a lot more uncertainty.

“Companies are always ‘just in time’ for how to supply the market, but now a lot of companies are pursuing ‘just in case’ because you never know,” said Maggie Chen, professor of economics and international affairs at George Washington University.

“I can sense the anxiety of businesses” at the conference, she added.

A surge of cheap exports and industrial production supported by the government has propelled China’s economic growth this year, as policymakers target around 5% growth. That’s prompted a pushback from developed nation partners because domestic industries stand to lose market share.

President Joe Biden’s administration announced a plan in May to nearly quadruple tariffs on Chinese-made electric vehicles, raising them to 102.5%. This month, the European Union revealed plans to increase tariffs on Chinese EVs to as much as 48%. Canada also announced this week it is considering imposing tariffs on Chinese-made EVs to align with allies against what they view as a heavily subsidized Chinese industry.

Chinese officials at the forum were careful not to comment on the impact of recent tariffs on trade, and on international companies with exposure to China. They also largely refrained from naming the US and Europe directly, focusing instead on how tariffs threaten the global fight against climate change and risk higher inflation.

“It’s very detrimental not only to Chinese exporters but to” other nations’ economies, said Ren Hongbin, chairman of the China Council for the Promotion of International Trade on the sidelines of the forum, “especially when we make common efforts to address climate change.”

“It’s against our common will and it’s also in opposition to COP28,” he said, referring to the biggest climate summit of 2023.

The WEF event is geared toward emerging markets and technologies, and many representative of those sectors were in attendance. But even companies eager for funding and partners are growing wary amid the trade barrage.

Swiss-based WasteFlow, a startup that uses AI and machine learning to identify and sort waste to streamline recycling, is considering sourcing some parts in Taiwan rather than Shenzhen to avoid higher costs and potential complications.

“If China is increasing the tariffs on goods imported, and Europe is doing the same, then doing business with China gets more and more complicated and more and more expensive to the point where it doesn’t make sense anymore,” said Theophile Agresti, the company’s chief operating officer.

In another example of how companies are navigating global tariffs and trade policies, Chinese executives have been meeting top officials in Malaysia to seek assurances they can avoid US tariffs if they relocate manufacturing to the Southeast Asian country, the Financial Times reported.

It’s imperative for companies to go global and cope with the new changes, said Xu Niansha, chairman of China Machinery Industry Federation and of state-owned China Poly Group Corp. Ultimately companies will seek the cheapest option, he added.

Chinese-based firms face more than just geopolitical challenges. Since 2020, Beijing has intensified its crackdown on private enterprises, especially in sectors like technology, finance, and education. Efforts to curb debt risks in the property market have also led to a prolonged slump, crimping economic growth.

The “government might not be as encouraging of the private sector as in the past,” said Eswar Prasad, a former International Monetary Fund official now at Cornell University. Regulatory changes in the tech and service sectors have “left a mark” on the industry, affecting small and medium enterprises, which provide the majority of employment in the country, he added.

--With assistance from Linda Lew.