China-US trade war: Large appliances have little impact, but some small appliances are affected

Trump signed a presidential memorandum, according to which, based on the conclusion of the US "301 investigation" on China, a package of tariffs will be imposed on Chinese products exported to the US worth up to $60 billion per year, and China will be sued at the WTO, and measures will be introduced to restrict Chinese companies' investment in the US. According to the memorandum of the day, the US Trade Representative's Office will formulate a specific plan for imposing tariffs on Chinese goods within 15 days after the signing of the document.

In response to the "301 Investigation" report released by the Office of the United States Trade Representative, the Ministry of Commerce of China said: The United States has ignored the fact that China has strengthened intellectual property protection, ignored the rules of the World Trade Organization, and ignored the calls of the industry. It has insisted on its own way. This is typical unilateralism and trade protectionism.

However, there was a small episode in the tense trade friction.

According to Caixin.com, since the memorandum did not mention it and Trump's speech was not clear, people were not sure whether the "60 billion US dollars" referred to the value of Chinese products subject to tariffs or the expected tariff revenue. Major US media outlets also gave different interpretations: The Wall Street Journal believed that it was a tax on imported goods worth 60 billion US dollars; The Washington Post believed that it was a tariff of 60 billion US dollars; and the New York Times even had two interpretations during the continuous update of the manuscript. However, later, both Chinese and foreign media adopted the statement that the tax was imposed on imported goods worth 60 billion US dollars.

Bottom-up and top-down

After Trump signed the memorandum, Chinese and US stock markets fell, and China's blue-chip home appliance stocks were also affected and fell all the way.

美国咨询机构高盛分析认为，在电动工具和电器产品方面，美国对华贸易逆差显著，这些品类将成为排名靠前的征税对象。而许多经济学家则指出，美国最新一系列关税措施，旨在打压《中国制造2025》产业政策中明确要优先发展的信息技术、机器人、航空航天装备、新能源汽车、电力装备等10个高新技术产业，削弱中国对美国“霸权”的威胁。

"As far as the home appliance industry is concerned, the source of previous trade frictions lies in corporate or market competition, but this time the trade frictions have risen to the national strategic level, and may affect a wide range of industries and industrial chains." Hu Xiaohong, senior consultant of the Information Consulting Department of the China Household Electrical Appliances Association, told China Home Appliance Network that many previous trade frictions can be summarized as bottom-up, while this time it is top-down.

In fact, last year the U.S. Department of Commerce launched an anti-dumping investigation against large household washing machines produced in China. The direct source was the American home appliance manufacturer Whirlpool, which directly pointed the finger at Samsung and LG and filed an anti-dumping complaint with the U.S. Department of Commerce and the International Trade Commission.

Hu Xiaohong told China Home Appliance Network that the United States had imposed "sanctions" on South Korean home appliance companies Samsung and LG for washing machines a long time ago. Later, the two companies transferred their production capacity to China, and the U.S. anti-dumping stick on washing machines was then "hunted down" all the way to China. In fact, the share of large-capacity washing machines exported by Chinese companies to the United States is not high.

"Compared with the top ten industries in 'Made in China 2025', home appliances have relatively low added value and are unlikely to become a key option for the United States to impose heavy tariffs." Zuo Yanque, general manager of the CIRC Brand Center, believes that a "trade war" in the traditional sense is unlikely to break out, and this time it is likely to be a lot of noise but little results.

In the view of Yu Zhipu, former secretary-general of the Home Appliances Branch of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, this trade friction is actually the result of a rebalancing of the major countries' politics and economy being transmitted to the field of international trade.

Regarding the current situation of the U.S. trade deficit, Ren Zeping, an economic researcher at Evergrande Research Institute, analyzed that in the global division of labor system, China plays a more important role as a producer, including large-scale imports from Japan, South Korea, ASEAN and other countries and then assembly and processing. China's trade surplus with the United States actually represents the surplus of the entire Asian system with the United States, forming a pattern of "surplus recorded in China, and profits in Europe and the United States."

America: ideals are full of hope, but reality is very thin

Although the list of products on which the United States will impose additional tariffs on China has not yet been announced, the impact on both sides in the home appliance industry has become increasingly clear.

Statistics from the China Household Electrical Appliances Association show that China is the largest importer of U.S. home appliances, accounting for about 50% of the U.S. home appliance imports (excluding parts). Among large home appliances, window and wall air conditioners and microwave ovens account for more than 80%; among small home appliances, vacuum cleaners, food processors, and coffee machines account for more than 70%, hair dryers and electric irons account for more than 80%, and electric clippers and electric toasters account for more than 90%.

"The United States is highly dependent on Chinese home appliances, and the United States should be the one that suffers more in the trade friction." Yu Zhipu told China Home Appliance Network that if the United States imposes high tariffs on China's home appliance industry, resulting in a sharp drop in Chinese home appliance exports to the United States, replacement capacity will not be achieved in the short term, and the imbalance in market supply and demand will inevitably lead to higher purchasing costs for American consumers.

Zuo Yanque said that once the American people give up China's relatively high-quality and low-priced home appliances, it will affect their happy lives, and people struggling below the poverty line will have to spend more money to get these home appliances.

U.S. Trade Representative Lighthizer said that the number of days for publicizing the list of products on which the United States will impose additional tariffs on China will be extended from 30 days to 60 days, which means that no additional tariffs will be imposed on related Chinese export products before June this year.

"A trade war cannot break out overnight; there is a process of brewing and preparation." Hu Xiaohong told China Home Appliance Network that China's home appliance industry plays an important role in the world, and its comparative advantages such as the perfect supporting facilities of the upstream and downstream industrial chains, the maturity of corporate management and development, production and operation efficiency, and the proportion of labor costs are irreplaceable. Even if a "trade war" breaks out, the United States will need to spend time studying feasible countermeasures in terms of finding alternative production capacity and reducing product costs.

China: Large appliances have little impact, but some small appliances have a greater impact

The United States is also the largest exporter of Chinese home appliances. According to estimates by the China Household Electrical Appliances Association, the cumulative exports of China's home appliance industry in 2017 were US$62.45 billion, of which exports to the United States were US$14.4 billion, accounting for 23.1% of the total exports of the home appliance industry.

In terms of export scale, products with exports to the United States exceeding US$1 billion in 2017 mainly include air conditioners, microwave ovens, vacuum cleaners, and electric baking appliances, among which the export value of vacuum cleaners and electric baking appliances both increased by double digits.

In terms of the proportion of each category of exports to the total exports, the United States is the largest export destination for 13 categories of products from China, including air conditioners, compression refrigerators, freezers, microwave ovens, electric fans, food processors, electric heaters, electric irons, electric baking appliances, coffee machines/electric kettles, bread machines, rice cookers, and gas stoves. Among them, microwave ovens, vacuum cleaners, and electric baking appliances account for more than 30%; coffee machines/electric kettles account for more than 40%.

"In terms of attributes, large appliances such as refrigerators, washing machines and air conditioners are regional products, and factors such as transportation distance and volume have a greater impact on costs, while small appliances are free-flowing products, so the proportion of small appliances exported to the United States is higher than that of large appliances." Hu Xiaohong said that the United States has a strong dependence on Chinese home appliances, especially small appliances. If China and the United States engage in a comprehensive trade war in home appliances, the products that will be most affected in China's home appliance industry are mainly concentrated in the field of small appliances, especially vacuum cleaners, microwave ovens, electric baking appliances, etc., while large appliances such as refrigerators, washing machines and air conditioners will be slightly affected. Overall, there will be an impact in the short term, but the long-term impact will be small.

Hu Xiaohong added that once tariffs are imposed on small household appliances, both China and the United States will be "very hurt." From this perspective, the more important the containment measures, the less likely they will be implemented.