This week we’re conducting an in-depth analysis of the ongoing ‘trade war’ between the United States of America and China. How did this commercial conflict come about? What are the potential ramifications for the UK manufacturing sector? Will the future of trade finance shift in unexpected directions if global economic turbulence persists? Find out the answers to all of these questions here, along with how your business can access financial support if it’s already experiencing resultant shockwaves right now.
Trade war overview and timeline
By now you’ll doubtless have seen countless headlines discussing the ‘trade war’ waged by the USA and China upon one another. The term, according to BBC News, refers to instances “when countries try to attack each other’s trade with taxes and questions” in a “tit-for-tat escalation” that can soon begin to “hurt other nations’ economies and lead to rising political tensions between them”. Indeed, that’s exactly what we’ve seen occur in recent weeks, with both nations competitively raising tariffs on each other’s goods and other regions such as the EU, Mexico and Canada drawn into hostilities by the US’ simultaneous taxes on key materials such as steel and aluminium. There’s no immediate end to the trade war in sight either, since the negotiations in which the US and China have engaged so far failed to bear any fruition and thus only heightened global uncertainty surrounding future developments.
In order for us to properly assess the current and potential future implications that this tense economic confrontation could have for UK businesses, in particular the manufacturing industry, let’s take a step back and gain some much-needed perspective on the events which brought about such explosive circumstances. We’ve compiled a timeline of the key moments in the so called US-China trade war below (with further information available at Bloomberg for those readers keen to learn more specifics)…
- January 22nd, 2018 – Anxious about China’s perceived dominance of the global supply chain in some areas, the USA announces “safeguard tariffs” on imported goods including washing machines and solar cells.
- March 9th, 2018 – Next came tariffs on aluminium and steel imported – not only from China, but any other nation – into the United States. However, President Trump confirmed that major international partners such as the European Union could conduct trade negotiations with the US before this legislation came into effect.
- March 22nd, 2018 – The US labels China’s trade practices regarding intellectual property (IP) and technological innovation as “unfair”, proposing resultant tariffs, investment restrictions and complaints to the World Trade Organization (WTO).
- March 23rd, 2018 – In one of their first significant retaliations, China counters the US’ steel / aluminium tariffs with $3bn of their own on imported American goods.
- April 3rd-4th, 2018 – As the US contemplates placing further tariffs on imported “high-tech industrial products” worth $50bn, China follows suit with new taxes on 106 US products such as aircraft, chemicals, cars and certain consumables.
- April 17th, 2018 – China’s next target is sorghum, an African crop utilised in the production of alcoholic drinks which garnered $1bn in trading terms last year. The country announces that it will henceforth levy “anti-dumping tariffs” on sorghum imports from the US.
- May 3rd-10th, 2018 – Negotiations in Berlin, far from dampening tensions between the US and China, prove unsuccessful and quickly prompt telecommunications behemoth ZTE Corporation to pull its US “major operations”.
- May 20th-June 3rd, 2018 – This fortnight proves akin to a rollercoaster for economic analysts as the US and China finally negotiate a ceasefire agreement, only for President Trump to renege one day later, the US to impose $50bn worth of tariffs on imports as well as plans to “limit some visas for Chinese citizens to protect [IP]”, and China to threaten withdrawing its offers / deals if these tariffs resume.
- July 6th, 2018 – While ZTE Corporation is authorised to re-commence its US business operations, the US-China trade war still shows no signs of deescalating as both nations again impose $34bn of extra tariffs on each other’s goods.
The future of trade finance and UK manufacturing
So what happens now? As detailed in The Week’s evaluation, reactions to the present situation and forecasts of its potential consequences differ considerably depending on which source we consult. Daily Telegraph reporter Matthew Lynn offers an optimistic outlook last month, claiming that “the UK’s import-heavy economy is more resilient to the impact of tariffs than countries such as China and Germany, who export more goods than they import”. It’s his belief that, since “we sell so little abroad these days”, “we’ll hardly notice” any global financial damage caused by the US-China trade war as a result.
But not everyone believes that the UK economy will escape this watershed conflict unscathed. UK Steel director Gareth Stace, for instance, emphasises that domestic manufacturing / steel firms are “in the midst of a fragile recovery following years of considerable turmoil”. As such, Stace fears “utterly devastating” consequences for the sectors if this stability “were to be undermined”, noting that the US’ steel / aluminium tariffs “would [soon] have a profound and detrimental impact” upon manufacturers.
What’s more, on a wider scale, WTO director general Roberto Azevedo says Washington and Beijing’s discussions remain “ongoing precisely because people are beginning to understand […] how serious this is and the kind of impact this could have on the global economy”. Indeed, while Lynn downplayed doom-laden rhetoric surrounding the trade war’s UK ramifications, he still concedes that “a trade war is the last thing the global economy needs right now” in the wake of the recent economic recession. Such a “global trading atmosphere poisoned by insularity and mistrust” as this could come back to haunt the UK post-Brexit, according to The Independent’s Sean O’Grady – “in an increasingly protectionist world,” he says (cited by The Week), “inheriting the EU’s old trade deals and winning new ones will be tougher than ever”.
All of this understandably will raise questions regarding the future of trade finance, both for businesses currently utilising this cashflow support facility and those considering doing so in the near future. How will the process of receiving advances on your customer orders to fulfil supplier payments and gather the necessary materials change if domestic or overseas suppliers raise the prices of their steel or aluminium products? Inevitably the fast-paced nature of trade war developments – evidenced in our timeline earlier – means that businesses considering trade finance arrangements should get consultation beforehand, while businesses who’ve already signed such an agreement may need to discuss funding lines / supplementary arrangements with their chosen financier if their supply chain transactions begin to suffer.
Find out more
For further information on what trade finance involves and how Touch Financial can help you find the most suitable funder in this turbulent economic climate, visit our dedicated product page today.