2 April 2018
I was interested to read that China has imposed tariffs of up to 25% on 128 US imports, like pork and wine, following American President Donald Trump’s move to raise duties on foreign steel and aluminium imports.
This is a trade war where the Chinese have more to lose. Look at the graph at the bottom of the linked article. This means if both countries squeeze each other with tax increases, it directly inhibits people being able or likely to buy from them.
If sales dry up, China has a great deal more to lose.
China has had an unfair advantage for many years and all countries have felt the might of their colossal growth.
Chinese companies have been able to take advantage of less regulations and compete very effectively with highly regulated countries like the US but also UK and right across Europe.
When the lower cost of Chinese imports hit the UK some years ago, everyone felt it. Many businesses struggled; many collapsed.
What it did force us to do was be innovative and creative. When you can no longer compete on price, you have to think harder and work out what your USP is and how you build loyalty with your clients.
We could buy many things cheaper from China but chose, in some cases, to start manufacturing our own products instead. The one advantage you have when you make things yourself is speed. The delay is the biggest issue to buying further afield.
The Chinese are brilliant manufacturers but they are a long way away from the UK. When you rely on someone who is so far away, you lose control over the timeline.
A trade war can drive innovation
I experienced a real-world example of this is recently. When we expanded our UKFast Space organisation, we had a choice to make. Instead of relying on others to be able to do the decorative and highly detailed work (which of course comes at a premium in both cost and time) we chose to buy a CNC machine (a little like a giant robot) that produces incredible products that we are able to use when designing interiors and exteriors of businesses.
In fact, this is a great example of where we have been able to innovate in this industry as the prices have now been squeezed upwards and the delays on furniture, for example, can easily run into months long.
With this investment, we can build and upholster furniture and highly detailed panels and products in hours or days.
A level playing field
I am certainly not the biggest fan of Trump but his decision in this case isn’t a daft one as the US has less to lose and it will drive innovation back at home.
I do think he has probably inadvertently started a global war on trade though, as many US corporations particularly in tech have potentially been abusing international agreements and deliberately avoiding expensive tax by creating complex structures across various global tax havens.
China work to a different set of rules to the UK, America etc – there are different regulations. But equally certain US businesses have been making hay whilst the sun shines with Amazon, Google, and other tech giants using tax loopholes to create a huge advantage.
The jury is out on how hard these businesses will get hit, and would it ever matter now? They have had such a colossal advantage for so long they have already destroyed much of the global competition.
Europe is talking about a turnover tax of between 1 and 5%. (Check number) for the tech giants. It’s time Britain followed suit. It’s time to bring in the tough measures we talk about. We need to allow UK businesses to compete on an even keel.