The direct consequence of the US imposing tariffs on China, Canada and Mexico is to push up the prices of imported goods and trigger "cost-driven inflation". According to the latest policy of the White House, the US imposes a 10% tariff on Chinese goods and a 25% tariff on Canadian and Mexican goods. The latest 301 tariffs on China, the comprehensive tariff on some goods has exceeded 45%.
People's livelihood consumption is the first to be affected: electronic products (mobile phones, computers), clothing and shoes, toys and other fields that rely on imports, the terminal retail price is expected to increase by 15%-25%.
The cost of energy and industrial products has surged: the tariff cost of Canadian oil and Mexican auto parts will lead to a 9% increase in the production cost of US refineries and an 18% increase in the procurement cost of auto companies.
Response strategies for foreign trade enterprises
The current foreign trade situation is extremely complex and changeable. Export foreign trade enterprises, especially those facing the US market, need to make adjustments and responses as soon as possible to increase the flexibility of enterprises and the resilience of the supply chain, and be prepared to cope with various changes that may occur in the future:
1. Capturing price-sensitive market demand
Development of alternative categories: Accelerate the export of alternative products for goods in short supply in the United States.
Locking in rigid demand products for people's livelihood: Prioritize the layout of rigid demand areas such as medical equipment and baby products that are less sensitive to prices.
2. Rigid measures for cost and cash flow control
Tariff cost sharing mechanism: Sign a price floating clause with the US buyer, agreeing that the two parties will share the tariff in proportion when the tariff increase exceeds 5%.
Regional supply chain backup: Synchronously deploy production capacity in Monterrey, Mexico and Haiphong, Vietnam to hedge against fluctuations in a single market.
Make good use of export factoring and financial exchange lock tools: On the one hand, use export factoring to provide credit terms, alleviate the buyer's cash flow pressure, obtain orders, and at the same time, ship and collect payments to reduce trade risks. On the other hand, use financial exchange lock tools to lock in forward exchange rates to comprehensively reduce the risks of corporate collection and exchange rate fluctuations.
The tariff war in the North American market is expected to further increase the year-on-year growth rate of US CPI in the second quarter of this year, triggering the Federal Reserve to adjust its corresponding policies, and further exacerbating the volatility of the US dollar exchange rate. If US inflation data continues to deteriorate, the US government and Trump may be forced to partially adjust tariffs on Mexico and Canada, with the highest probability in the energy and agricultural products sectors.
Faced with the reality that the total import volume of the US market has rebounded but China's share has shrunk to third place, foreign trade companies urgently need to further enhance the resilience of their supply chains, simultaneously explore incremental markets such as Southeast Asia and Africa, and rely on foreign trade tools such as export factoring and forward exchange locks to gain customers by credit terms, while being able to collect payments as soon as the goods are shipped and lock in forward exchange rates, improve capital circulation efficiency and profit lock-in guarantees, and reduce the risk of trade fluctuations, so as to find a way out in troubled times.
