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  • Need to Work on Supply Chain to be Prepared for Prolonged US-China Conflict
    2020-10-12 hit 1440

    Need to Work on Supply Chain to be Prepared for Prolonged US-China Conflict

    - KITA, “It will be virtually difficult for China to implement the phase one trade agreement” ... It will arise as a new conflict -

     

    As it seems that the conflict between the United States and China will prolong as the smooth implementation of the phase one of the US-China trade agreement concluded earlier this year is virtually impossible, an analysis suggested that Korean companies should reorganize their global procurement and export strategies for raw and subsidiary materials.

     

    According to a report titled “Recent Trend of the US-China Trade Dispute and the Impact on China's Import Market” issued by the Korea International Trade Association (Chairman: Kim Young-ju) on October 12th, despite the agreement to expand imports from the United States under the US-China phase one trade pact, China's additional imports from the United States until July of this year reached only about half of the planned target amount* (estimated to be 48.1%).

    * Target amount by July, assuming that China buys $173 billion American goods (measured by China data) by the end of this year under the US-China first agreement

     

    The phase one deal between the US and China signed at the beginning of this year is to purchase 200 billion dollars more in the United States over the next two years. China's unsatisfactory achievement is attributed to the decline in demand due to the spread of COVID-19 and the limitations of artificially changed importers.

     

    According to the report, China has made efforts by increasing agricultural products and energy imports from the United States by 50.3 percent and 7.9 percent, respectively, compared to the previous year. However, the country's imports from the United States rather decreased by 11.6 percent due to the United States export controls such as sanctions against Huawei and COVID-19 pandemic. Considering the decline in US-made price competitiveness due to China's retaliatory tariffs on the United States, and the fact that the remaining period of the year is not long, it will be difficult for China to achieve the import expansion target until the end of this year, the first year of the US-China pact.

     

    Even after the conclusion of the phase one trade agreement, the conflict between the United States and China has spread to not only economic but also diplomatic and security issues, such as restrictions on Huawei, Hong Kong Security Law, Xinjiang Uyghur human rights issues, shutdown of TikTok and WeChat, and tit-for-tat consulate closures, in addition to the bad news of the global spread of coronavirus.

     

    The report pointed out, “In preparation for the prolonged all-round conflict between the United States and China, Korean companies need to review overall procurement and export structure around global transactions such as ▲reduction in exports of raw materials to China, ▲business with Chinese companies such as Huawei, ▲export and import impacts of Korean companies in China, and ▲the possibility of expansion of sanctions against large Chinese companies in the United States. A prime example is that even Korean companies that do not trade directly with Huawei need to re-examine the entire supply chain, including suppliers, under the rule to restrict Huawei announced by the U.S. Department of Commerce, Bureau of Industry and Security in August. As long as the ground for the United State's check against China is the comprehensive logic of “national security,” the same measures on the second and third Huawei can be followed at any time.

     

    Lee Won-suk, a senior researcher at Center for Trade Studies and Cooperation of the Korea International Trade Association, said, “Following the restrictions on Huawei, the United States is forecast to impose sanctions on Chinese semiconductor maker SMIC,” and advised, “As China can also take retaliatory moves against the United States on a case-by-case basis, Korean companies should prepare for related risks under the premise that additional conflicting issues may arise at any time between the United States and China.”


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