US cos. are using an ingenious method to game the system and avoid the worst of Trump's trade war

Sorry I slightly altered the title, shortening the word "companies" to "cos." That change was made in order to actually post the article (FR limited the title in this case)

American companies may be finding an ingenious way to skirt around the tariffs imposed by President Donald Trump on importing Chinese goods, as a means of avoiding the financial hit caused by the 25% taxes.

According to a note from Paul Donovan, the global chief economist for UBS Wealth Management, some US firms are likely funnelling imports from China through other foreign subsidiaries, say in Canada, before finally importing them into the US. This allows companies to continue importing from China while dodging tariffs.

"A US company importing electrical switches from China now has to pay the new trade tax. A US company importing something that uses Chinese electrical switches from a Canadian subsidiary does not have to pay the new trade tax."

> “... some US firms are likely funnelling imports from China through other foreign subsidiaries, say in Canada, before finally importing them into the US. This allows companies to continue importing from China while dodging tariffs”

This is nothing new. This is what was going on for decades, also through Mexico, as part of a NAFTA loophole.

POTUS closed those loopholes with new and separate trade agreements with Canada and Mexico.

At first, Canada wouldn’t go along with it.

Canada has a huge Chinese population from Hong Kong in Vancouver, B.C. (British Columbia). Vancouver (’Hongcouver’) imports massive amounts of Chinese goods that were repackaged by Canadians for further export to the USA. That formed a ‘carry trade’ of sorts and was very profitable for Canadians.

But when Canada did the math and saw what they would lose in a trade war with POTUS and when they saw Mexico fall into line, they rushed to ink a deal. The result is the USA can kick Canada in its you know where if there is any funny business with imports of repackaged goods from China.

“Business Insider,” which published the article, is reliably anti-Trump.

I would like to see the source and the exact data for the author’s claim that Chinese switches exported to Canada “increased substantially,” but switch exports to the USA “fell.”

In any event, the quote that caught my eye...

“There is no real concrete evidence to support Donovan’s theory...”

The key here is that the electrical switches that are avoiding U.S. trade tarrifs on Chinese goods, by way of arriving in products made in Canada are (a) legal, as the switches themselves are not what is being imported from Canada, and (b) decreases manufacturing of finished products using such switches in the U.S. and increasing the manufacturing of the same in Canada. This circumstances not only involves Canadian subsidiaries of American companies, but Canadian companies that are not U.S. subsidiaries as well as companies in other parts of the world.

When tarrifs are raised on what are parts, supplies, raw materials or components that go into finished products, exporters are not hurt as much as are the manufacturing companies in the country that raised the tarrifs. The exporters merely alter how much is being exported to various places to accomodate manufacturers not resident in the nation that raised the tarrifs. Meanwhile the manufacturers in the nation that raised the tarrifs are paying higher prices for the parts, supplies, raw materials or components they need due to (a) the tarrifs, (b) higher domestic prices for those items they need for production due to less competition from imports.

I understand how much China is not a true free enterprise economy, but is more realistically a nationalist mercantilist dictatorship run state-capitalist economy with (a) the state more enmeshed in the economy deeply and broadly beyond what is visible on the surface and (b) pulling government nationalist strings for the benefit of domestic Chinese companies and the detriment of foreign own companies.

I understand how all that is detrimental to true free enterprise everywhere (its an entire economic model, not merely that it is a dictatorship doing it), and how it is detrimental to U.S. manufacturers in the U.S. in particular.

The problem is that tarriffs may not work, may not be the tool that brings long term relief from the problem. For tarriffs to work, they would have to be applied deeper, and expanded to manufactured goods from any country in the world that were made with anything that came from China that has tarrifs on it if imported directly to the U.S.

Whether or not I’d be for that is not the issue. I just don’t think Trump or any president is going to get such a broad authority from Congress and I think it would take getting that authority from Congress because I think Congress would legislate against it if they were not made partners to it and agreed to it.

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