The United States and China agreed to significantly lower the high tariffs they imposed on each other for the next 90 days. As a result, domestic corporations that export products made in China to the U.S. or sell intermediates to China can breathe a sigh of relief.
According to Reuters on the 12th (local time), the United States and China decided to reduce mutual tariffs by 115 percentage points (P) for 90 days during high-level trade negotiations held in Geneva, Switzerland. The tariff imposed by the U.S. on Chinese products was lowered from 145% to 30%, while the tariff imposed by China on U.S. products fell from 125% to 10%.
The United States and China have been engaged in trade conflicts since early February. After the Donald Trump administration imposed an additional 10% tariff on Chinese products that already faced an average tariff of about 25%, China retaliated by imposing an additional 15% tariff on U.S. coal and liquefied natural gas (LNG).
After the U.S. applied a 34% mutual tariff on China on the 2nd of last month, China immediately responded with a similar tariff rate announcement. Subsequently, as both countries continued to announce retaliatory measures, the tariffs imposed on each other surpassed 100%.
As the U.S. and China reached a de facto 'trade break,' the fallout affected domestic industries. Many domestic corporations have built factories in China to produce products for export to the U.S. To cut expenses, in recent years, domestic corporations diversified production facilities to countries like Vietnam and Thailand, but many still maintain production facilities in China.
A representative item exported by domestic corporations from China to the U.S. is IT and electronics products. Samsung Electronics is currently producing washing machines, air conditioners, and refrigerators at its Suzhou factory in China. Additionally, 22% of last year's total smartphone shipments were produced by a Chinese outsourcing company. LG Electronics is also producing air conditioners and microwave ovens at its Tianjin factory, washing machines at its Nanjing factory, and refrigerators at its Taizhou factory.
Many domestic textile and clothing manufacturers as well as various consumer goods manufacturing corporations are also producing products in China using Original Equipment Manufacturing (OEM) or Original Development Manufacturing (ODM) methods to export to the U.S.
Domestic corporations exporting intermediates to China are expected to see a significant reduction in business uncertainty. According to the Korea International Trade Association, 85.8% of South Korea's exports to China last year consisted of intermediates used in various IT devices, such as smartphones and laptop computers. Intermediate exporting corporations were concerned that if the U.S.-China trade conflict intensified, sales of Chinese finished goods would plummet, reducing demand.
An industry official said, 'If the trade conflict between the U.S. and China, the largest trading nations, had prolonged, domestic corporations would have found it difficult to avoid collaterals in the middle.'