High Tariffs Stand in the way of US Exports to China

epa01865575 Workmen load steel tubes in a metals wholesale market in Shenyang, northeast China 18 September 2009. U.S. Steel has asked President Obama to impose 90% duties on imports of Chinese steel tubes which it alleges are being dumped at prices below the cost of production. EPA/MARK

My company, Electroimpact, designs, manufactures, and sells products to the aerospace industry. Since China is involved in this industry, my company has been able to make sales there. Even though my company is selling products to China, my company is not manufacturing any there. I am truly fortunate that my company has been able to gain a foothold selling to the United States’ biggest competitor in the global marketplace.

There are many barriers to selling US made goods in China. These barriers occasionally open and then they close; purely based on the whim of the government. It will not be possible to resolve this without a commitment to active participation from the US government. For my company, Electroimpact, our opening is based on the interest of the Chinese aerospace industries to build new factories that can complete with those in the USA and European. As soon as they deem that they can buy equivalent goods inside of China then the door of opportunity will close.

The list of barriers blocking export to China is extensive:

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  1. Uncompetitive US employment regulations
  2. Wage differentials
  3. Import duties into China
  4. Border harassment
  5. Lack of commitment of US companies

Only the fifth barrier can be addressed by the management of companies in the US.  The other four issues must be addressed by a concerned and committed US government. Electroimpact is committed to employing the American worker. Most American companies are committed to short term profits, which does not help the American worker or the growth of business overall in the US and around the globe. At Electroimpact we will continue to try to sell our goods in China.

This problem of putting profits over people is a cancer eating away at the heart of America.  Many products and services that most Americans think are being made by American workers in the US are being made and managed in China. Because of this lack of understanding, millions of Americans are being marginalized when they find there is no demand for their work. These marginalized workers have no awareness of why they are marginalized; therefore, they provide no political strength and momentum to fix the problem.

A current example is prototype part machining. For over 100 years, millions of American works did this type of work. Now, if place an order from Rapidcut, a company located in North Carolina, the parts come from China wrapped in Chinese language newspapers. The American worker is sidelined. Americans are no longer machining the parts; the company simply orders them from Chinese workers instead.

To fix this problem, a significant first step would be to begin a fair and open conversation about import duties in China compared to those in the US. Standard import duty into China is 10% of 110% of the declared value. Anyone can read the details of in Chapter 84 of the Harmonized Tariff Schedule of the United States. For importing machinery and machined parts into the USA the duty is 2.4% with many exceptions that are duty free. Unfortunately, this is only part of the sad story.

Adding to the problem is the fact that China has a point of entry Valued-Added Tax (VAT) of 17%.  This is compounded to the 10% duty so the overall duty is 30%. The Chinese would argue that the VAT is returned when the importer sells the goods but this is incorrect. Inside of China, very few companies pay the VAT.  So, the import VAT is effectively an extra-territorial tax because full payment is demanded at the point of entry. The American worker is getting abused by this and this abuse is growing every day.

Wage differentials between China and the US is a massive problem. Workers in the USA make $20 per hour. In China, they make $20 per day. At this rate, there is no way that a company looking for profits will turn to a US worker over a Chinese worker. I support the living wage of $20 per hour but we should have duties to protect our workers. China does it, why can’t the US? As you can see above, the duties are going the opposite way against the American worker.

Border harassment is another significant issue that must be addressed by the administration.  Take the icon of rapid service, Fed Ex – this company is caught in border issues on a regular basis – but only when they are flying in to China. When someone in the US places order from the massive Chinese company Alibaba, the items are shipped out of China via Fed Ex. Those orders are delivered the same day they come off the airplane. But, this ease of shipping does not work both ways. When an American company ships items to China, those American items are held in the Fed Ex office for weeks to months. At the border, the Chinese government finds ways to dispute the declaration in the package and want further documentation.

If we simply delayed imports from China the same amount of time that they delay imports from the USA we could save large numbers of American jobs.  Take the case of the profit driven corporation such as Apple or GE.  Apple not only manufactures everything in China but they also package, label and ship to individual customers from China.  Apple would not be able to warehouse and ship from China if there was even a small delay at the point of entry.  The American worker gets nothing.  Unfortunately, the profit driven corporations are the ones with the seat at the table in Washington DC.  The family owned and small businesses that are committed to hiring the American worker have no voice in Washington DC.

My company is committed to the American worker which takes care of the fifth item on my list. But, the other four need help from the government and other American companies. We need strict government supervision to ensure that open trade does not harm Americans from all walks of life.

I demand that the Administration get to work on this and return jobs to the USA and keep them here.