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:

  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.

Once my employees are finished with the product, the only way it goes to China is if someone there buys it. None of my products are made there. So, if I can do it, why can’t other companies?

Customers, especially those around the world, find value in products that are made with American workers. Factories and shops in the United States are known for crafting high quality products. Think about the junk that often comes out of factories in China. Why would any proud, American-owned company want to put its name on a junky product made from a sub-par factory in a communist country? Especially when they can have it made by American workers who are well-trained and proud of working for an American company.

If anything is going to change with American manufacturing, then something should be done about the tariffs that China is placing on products entering the country. Of course, China is a communist country, so the government expects that its people will buy whatever they are told to buy. Therefore, the Chinese government can demand that Chinese people purchase products made within their borders. So, why would they allow any United States companies to sell products.

The answer is easy. American-made products are the best in the world. Or, at least they can be. At Electroimpact, I pride myself on employing the best engineers in the world who also happen to be educated at the finest universities in the United States. I give them the freedom to take their concepts from the idea-stage to completion without constantly badgering them for data. I trust that they will do what is right for Electroimpact, because that is ultimately what is right for them. Why wouldn’t any company or country that needs aerospace technology not want to work with my company?

Developments at Electroimpact are so special that even the Chinese want to do business with my company.

How many companies in the United States can say this? Not as many as you might think.

I would like to see more companies follow my business model so they can open business with China. Not as manufacturing partners, but as a place to sell products that are made from idea to market in the United States. By following me, businesses can open markets in China and make a positive change in the United States.

Imagine what it would be like for American workers to be able to find good manufacturing jobs in the United States. It would be a seismic shift in the way the United States economy functioned. Instead of buying cheap goods that are manufactured in China and brought into the US, we should be making high quality goods, made by well paid workers to send to China!

As an expert in this field, I would like to personally challenge all American business owners to investigate my theory. Check out what Electroimpact is doing and do the math. Look at my business model and how I do not micromanage my engineers. Look at how my deals with China work. Then, begin making the necessary changes in your company. Then, look at my bottom line.

I pay my employees very well. They have outstanding benefits and artist-like working conditions. My company is succeeding and so is everyone who works for me. I am succeeding, too. And, add to that the fact that my company is doing business in China without lowering standards or prices.

People do not want to buy junk. They want products that are built to last and they will pay for them. If companies in the United States embrace this fact, then they, too, can benefit from the global desire for well-made products made with American innovation and pride.

Let’s stop feeding the cheap Chinese labor machine and start feeding the Chinese marketplace. Let’s get goods made in America sold overseas. As an expert in selling to China, I know that what I’m doing can be done by other companies, too. America and the rest of the world is ready to buy American products that are designed properly and built to last.