Well, in yet another example of brinksmanship that plays hob with business planning, it appears the U.S. and China are close to signing an agreement that would conclude what the Trump administration is calling "Phase 1" of the negotiations. However, you should remember that both sides have said negotiations had moved close to an agreement last October, with first the administration and then China saying that a deal was in sight at different times, only to have the other side say “uh oh” and pull back. This happened as recently as October but after that, negotiations moved into a holding pattern as the administration pushed back an announced tariff increase that would've targeted a lot of imports, including board and card games, last September (see "Rolling For Initiative -- Of Tariffs and Commander UPCs").
The idea was that, since so many gift items sold during the Christmas holiday season come from China, a tariff imposed back in early Fall would have significantly affected sales by pushing up the price of imported games by 15% to 20%. Given that all companies selling products imported from China would receive their shipments prior to December 15, it was a fairly safe bet by the administration that setting a December 15 date to implement the next tariff would avoid dampening holiday sales, which account for 25 to 40% (depending on which reports you read) of all retail sales for the year. Since imports slow down from December 1 through early to mid-January, the administration avoids getting blamed by consumers during the holidays and pushes back increases until 2020.
However, now it appears that some trade concessions by China have given the administration the cover to put a hold on the planned tariff increases for the time being. We'll agree to not increase tariffs on Chinese imports, which have not really done anything to slow the amount of goods imported from China but have providing a massive influx of tax revenues into the Treasury. Meanwhile, as their part of the agreement, China agrees to purchase approximately $32 billion worth of American farm products and begin to address the technology transfer requirement that makes it easier for American companies to gain access to the Chinese markets.
Essentially, American companies wanting to do business in China have to enter into a joint venture with an existing Chinese company, and the U.S. company is required to turn over proprietary intellectual property to the Chinese company with which it develops the joint venture. Under patent and copyright law, that information is considered a trade secret and the US company would expect the Chinese company to maintain the privacy of that information. Unfortunately, Chinese trademark and patent protection laws are very lax and most intellectual property shared with Chinese joint venture companies typically ends up being leaked to competing Chinese companies that pay no licensing fees for the property and make a knockoff product for a significantly cheaper price. It's great for Chinese companies and consumers, but damaging to U.S. companies. Although, I doubt any major changes happen, the fact that China may start addressing these issues would certainly help U.S. companies do business in the huge Chinese market.
Now, if we could just do something about the other 25% tariff still remaining on Chinese imports?
The opinions expressed in this column are solely those of the writer, and do not necessarily reflect the views of the editorial staff of ICv2.com.
Column by Scott Thorne
Posted by Jeffrey Dohm-Sanchez on December 15, 2019 @ 9:03 pm CT