How US-China Trade War Impacts Businesses

With all the tariffs coming into effect left and right, it seems that the US-China trade war is the talk of the town. While the immediate consequences of it may be fairly obvious, what about the long-term effects on the economy and businesses? The goods being taxed are worth billions of dollars, so it comes as no surprise that the situation must affect every aspect of both the US and Chinese economy. Some of the most important large-scale issues will be outlined in this text.

1. Cutting costs

A huge number of businesses use imported goods in production. With the prices of the goods going higher due to the new tariffs, the businesses have to spend more money in production, which means that the costs will have to be cut in some way to ensure a steady profit. In practice, this means lowering people’s salaries, or even worse, layoffs. There have been many cases of firing workers since the tariffs were imposed, and many others will follow. By some estimation, the new policy will cost the USA over 400.000 jobs. Obviously, this situation will cause higher unemployment rates and thus put a bigger strain on the system, making the country poorer in the long run.

2. Offshoring

If your country introduces additional taxes on the materials you need for the production of your goods, what is the next logical step for you? Of course, moving your business away from the tariffs. There is already a high number of offshored businesses because of the difference in the labor price in different countries, and the current situation will definitely give a new boost to the trend. There are quite a few problems with offshoring, not least of which is muddying the waters around intellectual property and brand damage. Even if you ignore the downsides, the fact is that it means fewer jobs for the American people, which will ultimately be detrimental to the country's economy.

3. Problems with production

Since the tariffs have made all the materials necessary for production more expensive, many business owners will opt for alternative providers, which may not be sufficient or which could simply not be good enough. For example, in China, the grain sales have fallen drastically, since the country has imposed tariffs on the grain imported from the USA, which was easily China’s biggest supplier. The reason for taxing this particular type of product is obvious enough since it targets the states in which Trump has the biggest support. However, because of its gigantic animal food industry, China has a serious demand for imported crops off all kinds. That means that this situation can lead to a decrease in the speed of production or a complete stop of it unless China is able to find alternative suppliers very quickly.

4. Loss of profit

It’s obvious by now that in order to compensate for the higher prices of the raw materials used in production, businesses will have to raise the prices of the final product. Of course, even though that may lessen the blow somewhat, it may cause the loss in turnover through the cutback in sales. In a competitive market, every increase in prices can mean a loss of consumers willing to buy your product or service. This kind of atmosphere will naturally give an advantage to the businesses that hadn't been dealing with imported goods before the trade war or had been using imported goods, but in a smaller degree, or from the countries not affected by the situation. As a consequence of that, the businesses that had been relying on imported goods will possibly lose customers, and with them, the profit.

Obviously, the current atmosphere is detrimental to the economy of both states. However, before the countries' economies, in general, take the blow, the businesses will feel the negative effects of the trade war. Through the businesses, the employees will suffer, and in the end, the consumers will foot the bill for this political game.