The Story
The long weekend was full of twists and turns.
On Friday, China announced retaliatory tariffs on $75bn worth of US goods. Donald Trump fired back, raising tariffs on existing and planned Chinese imports. He also tweeted that he was ordering US companies to ‘immediately start looking for an alternative to China’. Stocks plummeted.
However, by Monday, talks were back on track with Donald Trump predicting an upcoming trade deal. Global stocks climbed back up.
Impact on Businesses and Law firms
US businesses that manufacture within China need to make a decision. Stay in China and face tariffs when importing Chinese goods back home, as well as the cost of retaliatory tariffs if they export goods to China.
Plus, face the increasing risk of both states using non-tariff measures. Should tensions escalate, the Chinese government could hurt US businesses operating in the country through customs delays or increasing regulations. Trump’s tweet suggests he might also seek a way to direct US companies to leave China under the guise of national security.
So, why not leave China? Well, many companies are exploring destinations such as Vietnam, Indonesia and Malaysia. Earlier this year, a Baker McKenzie poll found that 82% of the 600 global companies surveyed were considering supply chain changes in response to the trade war. However, shifting production facilities is very expensive and means losing access to China’s well-developed network of supply chains. Moving might lead to slower, costlier and less efficient production.
Testing and certifying suppliers, closing and opening production facilities, evaluating the impact of tariffs on a business – that all means demand for trade, regulatory and restructuring lawyers. Law firms may expand their capability through promotions and lateral hires to make the most of this opportunity (as Reed Smith did recently with the hire of Dora Wang). If companies are looking to evaluate suppliers in multiple jurisdictions, it’s the global law firms that stand to benefit, especially those with a strong presence in Southeast Asia.
By Jaysen Sutton
