What’s Coming For U.S.–China Relations in 2019… and What Your Company Needs to Do About It

Chinese and American Business Cultures Are Different:  How Tariffs Are Applied in Each Country Is Different Too

Tariffs dominate the current U.S. – China trade dispute.  Lost in the rapid back-and-forth tariff conflict is the fact that United States and China tariff regimes are applied differently in each country.  The only common feature is both nations assess tariffs on a select number of goods coming into their respective countries.  The similarity stops there.

In the U.S., private companies and corporations pay tariffs on select imported goods arriving from China. But in China, the government that imposes tariffs on U.S. imports is also the single largest importer by value of U.S. goods. Basically, the Chinese government imposes tariffs on itself. But does it really pay these tariffs? Do tariffs assessed in China have the same impact on business and commerce there as they do in America? Do American companies operating in China get the same tariff break as their local competitors? The answer to these three questions is “NO”.

First, China’s government, its ministries, state-owned-enterprises (SOEs) and SOE private affiliates, are the largest consumer of U.S. goods by value in China.  The government does not tariff itself or its entities. The current tariff payment practice is an accounting “wash”. Where tariff payments are actually made by the receiving party, payment is offset by an equal government rebate.

Second, tariffs on incoming U.S. goods are calculated in local RMB currency at a self-managed exchange rate determined by China. RMB currency is used for all business transactions in China; it has no intrinsic value outside China since it is non-convertible.  RMB is plentiful, especially to SOEs. This is due to large monetary quantitative easing measures to ensure the domestic economy is financially well-lubricated and growing.  It is not a burden for SOEs to be faced with RMB-denominated 10%, 15% or 20% or more tariff charges.

Third, American companies in China that import tariffed goods from the U.S. do not get the same tariff break as their SOE competitors.  They pay the RMB-denominated tariff.  In addition, there are reports U.S. companies are facing obstacles not encountered before the trade conflict began: increased customs inspections, delayed clearance, and in some cases, rejection of arriving shipments for various, heretofore, unclaimed infractions.

There is a lot to be learned about these differences and how your company, supply chain or customer base is affected by them whether you do business with China or not.

To learn more about how Illinois BIS can help you with U.S.-China relations and more, contact us today at (630) 505-0500 or visit our website at https://illinoisbis.org/.

Michael Sacharski, Managing Director
Multicom, Inc. / Pacific Enterprise Capital International