Trump’s Tariffs Create Scattershot Impact on China Companies

Trump’s Tariffs Create Scattershot Impact on China Companies

© Bloomberg. Investors stand at trading terminals at a securities brokerage in Shanghai, China, on Friday, Oct. 13, 2017. A number of economic indicators show © Bloomberg. Investors stand at trading terminals at a securities brokerage in Shanghai, China, on Friday, Oct. 13, 2017. A number of economic indicators show

(Bloomberg) — Chinese companies scrambled to assess the impact of proposed U.S. tariffs on 1,300 products as President Donald Trump took a swipe at companies making televisions to dishwashers but spared levies on other goods that might hurt U.S. consumers.

The wide-ranging list of products that may be hit with 25 percent tariffs includes malaria diagnostic test kits, sewing machines and aircraft turbo propellers. Aviation and technology companies were among the groups targeted, while Chinese shoes and clothes makers largely escaped penalties that may have led to price hikes in the U.S.

Read more: Shoes Spared, TVs Hit as Corporate America Digests China Tariffs

“They’re doing it so it looks like they’re taking grandiose action that’s brave and strong, but they don’t want to create a disaster for the U.S. consumer,” said Alice de Jonge, who teaches international trade law at Monash University in Melbourne.

In targeting sectors that Beijing is openly trying to promote, the U.S. is signaling that its strategic aim is preventing China from gaining the global technological leadership that it wants. That has provoked anger in China, while there are doubts that the tariffs will succeed in changing Beijing’s behavior.

“The list just reinforces that anxiety and alarm that our members, American businesses operating in China, feel about the danger and costs of going down the path of retaliatory tariffs,” said Keith Jarrett, president of the American Chamber of Commerce in Shanghai.

Concerns of a trade war accelerated as China struck back at the U.S. Wednesday, saying it would levy 25 percent tariffs on imports of 106 U.S. products. China’s list included soybeans, automobiles and aircraft, as well as whiskey, cigars and cigarettes.

Many Chinese companies said they were still assessing the impact of the U.S. list that was long and highly specific.

The impact on Chinese stocks was muted. Shares of companies with strong ties to the U.S. that escaped tariffs such as Samsonite International SA and Li & Fung Ltd. rebounded on Wednesday. Pharmaceutical stocks jumped, even as Washington targeted dozens of key products used by drugmakers, as investors piled into companies with little exposure to the U.S. and China said it will boost generic drugs supply and quality.

The biggest blow by far would be to almost $4 billion worth of flat-panel TV screens, said Bloomberg Intelligence trade-policy analyst Caitlin Webber. Technology companies could see some cost increases or supply-chain disruption because there are multiple computer parts and components on this list, Webber said.

Tech companies like Apple Inc (NASDAQ:)., Lenovo Group Ltd. or Hisense Electric Co. that operate significant Chinese production bases may also come out losers. Even American companies with manufacturing footprints there such as Dell Inc. and Intel Corp (NASDAQ:). may feel the pain if they export back home.

“The Trump administration deliberately targeted strategically important tech sectors,” said Teng Bingsheng, professor at the Cheung Kong Graduate School of Business in Beijing. “The U.S. definitely feels threats from China over the next decade in areas including semiconductors.” Overall, though, the damage may be limited as Chinese tech exports to the U.S. are small, he said.

Open Markets

Lenovo said in an emailed statement that as a global company it supports fair trade and open markets. Apple didn’t immediately respond to requests for comment, but CEO Tim Cook told a forum in Beijing last week he was opposed to an escalation in trade tensions. A representative for Hisense didn’t immediately respond to requests for comment.

Among industrial companies, CRRC Corp., the Chinese train maker that’s been expanding overseas, could feel the heat. The state-owned company has won orders to supply subway trains in Philadelphia, Los Angeles, Boston and Chicago. It has also pledged to assemble or produce some of the parts in the U.S. and create local jobs.

A slew of subsidiaries of Aviation Industry Corp. of China, known as AVIC, and the Commercial Aircraft Corp. of China, or COMAC, could also feel the pinch. That’s because they make parts for Boeing (NYSE:) Co. planes in China. Though their annual contribution to China’s economy is not more than $1 billion, the manufacturing process helps them develop expertise in designing and building their own aircraft.

Representatives for CRRC and AVIC didn’t respond to calls requesting comments, while a spokesman for COMAC referred to the Chinese government’s reaction.

Drug Makers

Though the tariffs target Chinese drug makers, those on the losing side may be American pharmaceutical companies that make generics such as Mylan (NASDAQ:) NV. The 25 percent tariff would be placed on raw ingredients for drugs such as insulin used by diabetics, the anti-allergic-reaction drug epinephrine, as well as vaccines, blood products and antidepressants, according to the list.

For brand-name drugs, raw ingredients used by manufacturers are typically a tiny fraction of the cost of a product. They can be more important for generic medications that are essentially low-cost commodity products.

China’s major suppliers of raw drug ingredients include Zhejiang Hisun Pharmaceutical Co., CSPC Pharmaceutical Group Ltd., and Zhejiang Hisoar Pharmaceutical Co. Still, shares of Chinese bulk drug makers jumped Wednesday, after China’s cabinet released a series of favorable policies to boost the local generic drug industry.

Most of the nation’s drug companies are focused on the domestic market and U.S. sales account for a small percentage of their sales and profits, said Jialin Zhang, a senior health-care analyst with ICBC International Research Ltd. in Hong Kong.

CSPC Pharma shares gained as much as 9.8 percent Wednesday, while Sinopharm Group jumped as much as 8.4 percent to a record close.

Muted Response

Many consumer companies also shrugged off the tariffs. Qingdao Haier Co., a home appliance maker that acquired iconic American brand GE Appliances in 2016 for $5.6 billion, said the tariffs won’t hurt the company. A representative said more than half the company’s business comes from overseas.

China’s $11 billion industrial robot market, which includes appliance-maker Midea Group Co. and its Kuka subsidiary, is also likely to escape unscathed. China’s robot makers are mostly focused on growing in China, the world’s biggest market for industrial robots, with few exporting them to the U.S. China is installing more robots than any other nation as its vast manufacturing industry increases automation to move up the value chain.

While there was relief that companies’ worst trade-war fears might not be realized, business groups said they opposed tariffs as a way of tackling intellectual property disputes.

“The American business community wants to see solutions to these problems, not just sanctions,” John Frisbie, president of the U.S.-China Business Council, which has offices in Washington, Beijing and Shanghai, said in a statement. “Unilateral tariffs may do more harm than good and do little to address the problems.”

(Updates with quotes beginning in fifth paragraph.)

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