Outside In | In Trump’s trade war, US companies will be the first casualty of friendly fire

David Dodwell says an understanding of the interdependent dynamics of global production chains points to the conclusion – backed by research – that Trump’s tariffs on Chinese exports will hurt many foreign-owned businesses, including America’s corporate giants

Reading Time:4 minutes

A container ship docks at the port in Qingdao in Shandong province in April. As much as 46 per cent of China’s exports in 2014 were accounted for by foreign-invested enterprises. Of exports to the US, 60 per cent come from these enterprises. Photo: Chinatoppix via AP

Published: 3:30pm, 22 Jun 2018Updated: 4:12am, 23 Jun 2018

Hopefully, by now, it is beginning to dawn on Donald Trump’s trade team how naive it was to think that trade wars might be good and easy to win. What they have yet to realise as they ratchet up their tariff “punishments” is that the main victims of these actions are their own global multinationals, and of course America’s own consumers.

And no, I am not even talking about the price they will pay as purchasers of more expensive imported steel and aluminium, or car components. Steel prices in the US have increased by 40 per cent since March.

Rather, I’m talking about a fascinating piece of research by Mary Lovely and Yang Liang at the Washington-based Peterson Institute, which lays bare a reality that has been hiding in plain sight: Trump’s tariffs “largely tax the exports of foreign enterprises operating in China, whether US-owned or with parents domiciled in other advanced economies (all US allies)”.

Lovely and Liang reveal that 46 per cent of China’s exports in 2014 (the latest available data) were accounted for by foreign-invested enterprises. Of exports to the US, 60 per cent come from these enterprises.

Sitting in Hong Kong, I should have quantified this long ago: the great majority of exporters operating in the Pearl River Delta are Hong Kong and Taiwanese manufacturers that flooded in after Deng Xiaoping launched the special economic zones in the early 1980s, and enterprises from the United States, Japan, South Korea and Europe that have arrived since.

As far as China’s exports go, most come from foreign companies operating there. And Guangdong, which in 2016 exported over US$1 trillion of goods, accounts for 29 per cent of China’s exports.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x

.css-1m2rp1p{color:#34b8b5;}Outside In | In Trump’s trade war, US companies will be the first casualty of friendly fire

Outside In | In Trump’s trade war, US companies will be the first casualty of friendly fire