September 21, 2018 / 3:21 AM / 3 months ago

Breakingviews - Trump tariffs fallout hints at protracted battle

U.S. President Donald Trump sits behind his desk as he announces a bilateral trade agreement with Mexico to replace the North American Free Trade Agreement (NAFTA) at the White House in Washington, U.S., August 27, 2018. REUTERS/Kevin Lamarque - RC14BF341FD0

HONG KONG (Reuters Breakingviews) - The fallout from American tariffs is hinting at a prolonged trade war. As U.S. companies brace for taxes on another $200 billion of Chinese exports, many say they’re now considering leaving the People’s Republic. That has Beijing wondering if such an exodus is as much a policy aim as the stated motive of intellectual property theft.

Nearly 75 percent of U.S. companies in China say the latest slug of duties – set to go into force next week – will negatively impact their business, according to a recent survey conducted by two American Chambers of Commerce in China. Another one undertaken by the U.S.-China Business Council found remarkably similar results. What’s more, the polls indicate perceived low-level retaliation from Chinese officials.

The biggest impact, however, may not be crimped earnings or more inspections. Rather, the focus will soon shift to supply chains. Executives will have to incorporate the latest tariffs into their capital allocation plans. They might also reasonably anticipate more taxes, as President Donald Trump has suggested. The distinction between a threat and actual implementation can be blurry.

That will have profound implications for manufacturing in China. Nearly a third of respondents to the Chambers’ survey said they are seeking suppliers outside the country and almost a fifth say they are considering moving production. It adds credence to anecdotal accounts of a new normal taking hold.

Many Chinese officials are starting to think that may have been the point all along. The proximate cause of the levies is the administration’s allegation that China steals protected inventions and ideas. That is a genuine concern, but Trump’s public calls on the likes of Apple to relocate manufacturing to the United States make it easier to believe the tariffs also are aimed at American companies.

If an objective is to prod multinationals to come home or simply to leave China, the White House may be all too happy to drag things out – especially if it’s working.

Breakingviews

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