18 September 2009

The row between the US and China over import tariffs will have repercussions for purchasers around the world, at least in the short term. Jake Kanter reports

Political blows have been exchanged this month between China and the US over aggressive trade decisions.

It began when the US imposed tariffs on what it described as the "harmful surge" of Chinese tyre imports for passenger cars and light trucks. China's response was to lodge a complaint with the World Trade Organization. Minister of commerce Chen Deming said the tariffs were "protectionist" and "sent the wrong signal to the world".

Meanwhile, China announced it had launched an "anti-dumping and anti-subsidies" investigation into imports of US car products and, somewhat oddly, chicken meat. The probe will reveal whether US companies are exporting goods to China at a cost lower than they normally charge in their local market.

But China sought to calm talk of a trade war. Yao Jian, spokesman for China's Ministry of Commerce, told state media website Xinhua: "We don't want to see individual trade remedy cases hurt bilateral trade and the economic relationship."

Politics aside, there is consensus that the dispute will hit not only buyers in China and the US, but have a direct impact on purchasers around the world. Gerry Mattios, practice leader - supply chain and procurement at Atos Consulting China, says the situation will increase bureaucracy and make it more difficult for purchasers from anywhere to source from China.

Bradley Feuling, chief executive of procurement consultancy Kong and Allan, has supply chain experience in the US and China. He says tariffs on goods such as tyres will have an immediate impact on the decisions buyers make - particularly where to find an alternative source.

Indeed, last week Roy Littlefield, executive-vice president of the US Tire Industry Association, said the measures were disappointing and will tighten the supply of low-cost tyres. Feuling argues that when tense trade relations are combined with a difficult economic climate, Chinese suppliers are more apprehensive about doing business with US firms.

But Feuling and Mattios say worse relations between China and the US could actually be beneficial for buyers in the UK and Europe.

"The volume of China's trade with the US is going to fall and as a result the extra capacity suppliers will have will lead to supply into Europe and ultimately maybe better prices," Mattios explains.

Karl Alomar, CEO of China Export Finance, says the dispute is part of the ebb and flow of political tensions between the two countries. But he also advised purchasers to ensure their supply chains are "diversified" so they can approach back-up vendors if prices become too steep or if supply is completely restricted.

While last week's events certainly cooled relations between the nations ultimately the pair are inseparable.

"The US and China need each other badly," Mattios says. "It's almost like a married couple. China is the world's second biggest economy and very soon it will be the number one economy. The frosty relations are all part of this and in the long term relations will get better."

SMsep2009

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