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US-China trade war: American companies skirting round tariffs

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Donald Trump isn’t going to like this.


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  • American companies may be finding an ingenious way to
    skirt around the tariffs imposed by President Donald Trump on
    importing Chinese goods.
  • UBS’s Paul Donovan said some US firms are likely
    funnelling imports from China through other foreign
    subsidiaries.
  • This allows them to import products from China, but
    without having to pay the 25% tariffs levied on imports from
    the country.
  • Concrete evidence for this is slim, but there are clear
    signs it is happening, Donovan said.

American companies may be finding an ingenious way to skirt
around
the tariffs imposed by President Donald Trump
on importing
Chinese goods, as a means of avoiding the financial hit caused by
the 25% taxes.

According to a note from Paul Donovan, the global chief economist
for UBS Wealth Management, some US firms are likely funnelling
imports from China through other foreign subsidiaries, say in
Canada, before finally importing them into the US. This allows
companies to continue importing from China while dodging tariffs.

Here’s the key paragraph from Donovan (emphasis ours):

“A US company importing electrical switches from China now has to
pay the new trade tax. A US company importing something
that uses Chinese electrical switches from a Canadian subsidiary
does not have to pay the new trade tax.

“If US companies move a stage of their manufacturing overseas (to
a country other than China), the trade tax is avoided.
The US is, in reality, importing as many Chinese
electrical switches as ever it did.
It is just now they
come packaged up as something else, and that package is made
somewhere other than China.”

This means of skirting round tariffs is most effective, Donovan
says, in multinational companies based in the US, as these firms,
by their very nature have offices and manufacturing plants around
the world. For these companies, moving small parts of production
to different factories is a fairly simple process.

It is however, hard to detect, meaning that such moves are
unlikely to show up in official data.

“In many cases, however, it is not the whole production process
that is changing location, just one part of it,” he wrote.

“Around 40% of all global trade is done by multinational
companies. These companies by definition have factories in more
than one country. It is not easy to spot this in the data.”


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That means there is no real concrete evidence to support
Donovan’s theory, but there are very clear hints that it is
happening.

“Exports of Chinese electrical switches to Canada increased
substantially after the US taxes, as US imports fell,” he said.
“Other products saw similar surges in Canadian demand. The
patterns of trade after the July trade taxes are certainly
suggestive.”

So far, the US and China have traded tit-for-tat tariffs on goods
totalling $360 billion, with the US acting as the aggressor, and
Trump threatening numerous times to place tariffs on all US
imports from China,
worth about $500 billion
.

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