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The unpredictability and uncertainty of the US-China trading battle have triggered anxieties and fear on exporters trading between China and the US. Some said the tariffs paid to the US government should be importers of the US, not the manufacturers.
The wide-ranging tariffs of the US-China trade war since mid of 2018 has spread the gloom over China and Hong Kong exporters. Transport and logistics industry, in particular, has been hit hard. The trickle-down effect of tariffs are expected to impact along the supply chain:
1. Pass the tariffs to consumers by increasing retail prices
2. Importers with a lower profit margin
3. Importers request suppliers in China for a discount to offset the tariffs
4. Manufacturers in China reduce orders from the US or provide discount
5. Suppliers outside China receive increasing orders from the US and raise costs
The US-China Trade War Escalates:
Strategies for Mitigating Risks of Exporting to the US
As the tit-for-tat tariffs drag on between the world's two largest trading nations, no one could predict the severity and duration of the impact. Below recommendations help to minimize short-term / mid-term risks and to ensure healthy cash flow for manufacturers and exporters:
1. Before Exporting Goods: Stating Tariffs Responsibility
Manufacturers should ensure if customer would like to proceed with unshipped order even the tariffs has been imposed on their products. Before shipping out the goods, exporters should negotiate with buyers for tariffs responsibility and signed agreement documents.
2. Goods Have Been Shipped: Be Aware of Refusing Shipment
For buyers who default on payment of goods due to the tariffs, exporters are advised to pursue debt payment immediately, and if necessary, to initiate legal procedures for protecting legitimate rights and interests.
3. New Orders: Reinforce Risks Coping Strategies
a) Highly recommend exporters to carry export credit insurance in order to reduce financial risks.
b) Review contract terms signed with customers and pay extra attention to details such as transaction currency, indemnification, breach of contract and contract dispute resolution clause. Good contract terms and conditions are essential in securing rights and interests for both parties.
c) Most importantly, Know Your Customer by verifying the identity of clients and assessing potential risks as business partnership.
Remember that risks always come along with business. Pay close attention to economic environment and be prepared.
Photo by Jeffrey Swanson on Unsplash
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