Tariffs starting to inflict real pain, trade association exec says

24-Oct-2019 - Last updated on 24-Oct-2019 at 16:30 GMT

Getty Images

A vast and growing majority of American companies doing business in China have been negatively affected by the US-China trade war, an expert on the matter said at a recent meeting.

Anne Ashton, senior director of government affairs at the US-China Business Council, gave a presentation on the subject at the American Herbal Product Association’s Eighth Annual Botanical Congress that was held in Las Vegas recently. The event was held in conjunction with the SupplySide West trade show.

Ashton, who has a law degree from Georgetown University, has long experience working in US-China relations. She has previously worked with the US-China Economic and Security Review Commission and has coordinated the visits of Chinese trade delegations. In addition to her law degree Ashton has bachelor’s and master’s degrees in Chinese language and East Asian studies.

Trade war, pure and simple

Ashton said her group made a decision a number of years ago to only have US-based companies as members, to make clear the organization’s mission of representing US interests in the members’ trade with China. She said that the trade relationship has been getting more and more difficult, and this is reflected by the experience of her group’s member companies.

“We are in a trade fight, however any politician tries to spin it,” Ashton said.

Growing number of companies feeling the pain

Ashton said her organization polled its members on how things are going in China. The question was if the US-China trade tension had affected their business there. In 2018, 73% answered in the affirmative. This year 81% of respondents said yes to that question.

While some supporters of President Trump might support his apparent get-tough stance and believe that he is delivering on a campaign promise, Ashton said the narrow, mercantilist view on which the policy seems to be based does not reflect modern global economic realities.

A market that can’t be ignored

“Even in this atypical market China remains a top 5 priority for our member companies,” Ashton said. “More than half of them remain more profitable in the China market than in their next 10 markets combined.

“Once China’s middle class becomes 50% of the country it will be bigger than the entire US market. Companies cannot compete globally without being successful in China,” she added.

The US China Business Council has more than 200 member companies. It includes such major players in the supplement and food industries as ADM, Amway, Bayer, Cargill, CocaCola, DuPont, GNC, Herbalife and Pepsi.

Moving operations not a simple question

Ashton said given the realities of member companies’ China operations, they have little recourse but to hunker down and take the blows. Relocating operations is not something that can be done quickly nor, given the huge investments already made in Chinese operations, a decision to be taken lightly. And in some cases, such as the supply of many dietary ingredients that go into dietary supplements, there are few alternatives.

“Only 14% of our member companies have said that they are moving their operations out of China. And very few of those companies are moving those operations back to the US,” she said.

Considerations such as the costs of the move, the location of raw materials, and the technical capacities of the various markets must figure into these decisions. Is there a big enough supply of labor with the right kind of skills? How much will that cost? It’s long way from the White House’s apparently simplistic view that it’s merely a matter of turning the China switch off and turning the US switch on.

“Most of our member companies expect the uncertainty to continue. Most don’t expect a deal to get done and if it does get done, it will take years. Our Chinese contacts ask us if the White House really wants a deal. That’s a hard question to answer,” she said.

Ashton said the impact of the tariffs, which are shortly to apply to almost all goods imported from China, is hard to calculate in the supply of herbal ingredients. These goods generally trade in tiny volumes in the grand scheme of things, and fly under many classifications. But in bigger markets, the impact is starkly clear.

“US soybean farmers, for example, have lost an enormous amount of market share,” she said.

Grave outlook for ginseng

Another speaker, Steve Schumacher of the Ginseng Board of Wisconsin, gave attendees a view of what the impact of trade war has been for his members’ businesses. It comes as a surprise for many outside of the botanical realm that much of the ginseng used in herbal medicines in China is grown in Marathon County in Wisconsin. The latitude, the weather and in particular the makeup of the glacial soils in that north-central part of the state make for a cultivated ginseng crop that is top quality in terms of its bioactives content and is in high demand in China.

But Schumacher said the demand is not so great that traders are willing to pay any price. Because of retaliatory tariffs imposed by the Chinese government, the near term outlook for the trade in Wisconsin-grown ginseng is grim. Schumacher said ginseng grown in the US is now subject to tariffs and taxes amounting to 48.5% of the contract price.

“That of course is a staggering number and a number that is not sustainable for Wisconsin farmers,” he said.

The impact has been that the price of ginseng has been steadily dropping. The price for the Wisconsin crop in 2018 was $59 a pound; this year it is down to $36.50. About 30% of the 2018 crop remains unsold, he said.

Schumacher said his group has a simple message for President Trump.

“You kind of put us into this situation; now why don’t you try to help us out? How about signing a trade deal that ensures truly free trade going forward?” he said.