Doing the Tariff Tango
3 Reasons Why Your Food Equipment Sourcing Plans Shouldn’t Be Discouraged by the U.S.-China Trade War
For E&S dealers, major restaurant chains and other foodservice businesses working hard to compete in the industry right now, it’s understandable why the U.S–China trade war has been frustrating.
Just as the prospect of sourcing food equipment from China began to look like a real cost-control solution, Trump and Xi’s escalating tariff tit-for-tat effectively cast doubts on the idea.
It’s also understandable why the same food business executives might seem weary of the recently signed Phase I trade agreement that, otherwise, looks like a positive first step toward the end of the ‘conflict.’
After all, the past year or so has had other false positives and this agreement doesn’t even lift the 25% tariffs on Chinese industrial goods. That’s for later. But who knows exactly when?
It’s no wonder, as encouraging as Phase I is, economists like Hannah Anderson, the Global Markets Strategist at J.P. Morgan Asset Management in Hong Kong, say, “we should all be aware that headlines about trade, particularly U.S. China trade, are going to be a constant feature of 2020.”
All that said, anyone seriously considering foreign-sourced food equipment shouldn’t be too shaken by the prospect of U.S.-China trade relations taking a sudden left turn toward disaster.
Sourcing is still a good option to explore in 2020 and here are 3 reasons why.
1. China and the U.S. Have Too Much Incentive to End the Standoff
Yes, we’ve all heard the “progress is being made” mantra more than once since the trade war officially began in July of 2018.
And, yes, business veterans on both sides of the Pacific are amazed that it’s gone on this long.
So, pride, politics and other factors really can give economics a run for its money as the primary influencer in this kind of battle. But, ultimately, economics always wins.
Make no mistake. China is hurting. It’s an export economy and they virtually live and die by the U.S. market.
America isn’t suffering to the same extent. But China’s labor rates and reciprocal market potential are just too valuable to U.S. economic growth for American businesses not to apply political pressure on Washington at some point.
Both sides are getting restless. China more so—which explains why the Phase I deal looks the way it does.
None of the experts can predict when the ‘war’ will officially end.
But they all know the end is coming.
2. Expert Sourcing Negotiators Can Offset Added Tariff Costs
It’s already being done, in large part because of the aforementioned imbalance of pain that leans more heavily on Chinese manufacturers in this situation.
China hasn’t arrived on the threshold of challenging the U.S. as an economic superpower without understanding business.
Experienced sourcing agents, having established relationships among China manufacturers, can reason with these partners to lower their prices, such that it minimizes the tariff imposed as a percentage of that price.
Weigh in other international economic factors, such as currency exchange rates, and these same sourcing experts have often been able to significantly reduce the effective tariff rate and, thus, the subsequent overall production-cost increase associated with it.
When the role players are all believers in good business, negotiations can work through almost any challenge. And, for sourcing experts who know the market, China is still where it’s at for manufacturing—especially involving metal—even in the face of tariffs.
It’s most certainly worth a quote.
3. Foreign Sourcing of Quality Food Equipment Isn’t Limited to China
Even before the tariff scare, factors like wage growth in southeast China, where industry was booming, had Chinese manufacturers looking for alternative labor markets.
Enter countries like Vietnam, Malaysia and, to a somewhat lesser extent, Thailand and the Philippines, where many of these manufacturers have either moved or expanded, or are in the process of doing so.
China is still the capabilities leader and, most likely, the best value if quality is an issue. But other alternatives are emerging every day, perhaps, somewhat accelerated by the trade war.
Points 2 and 3 still stand. The war won’t last forever, and China remains highly competitive anyway. But, when push comes to shove, the broader Asian manufacturing landscape is already showing the promise of supplier diversity that, again, makes pursuing a quote for food-equipment sourcing extremely worthwhile.
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