Andy Mukherjee: Importers hit by Trump tariffs could turn to ‘glocal banks’
Trade finance isn’t just about lubricating cross-border commerce, but also about easing flows of business intelligence. Banks that are both global and local—and specialize in Asian trade financing—could suggest supply source options.
The optimism around US President Donald Trump’s promise of a “total reset" in relations with Beijing is fading fast; and that’s a worrying omen for US importers. For many, the urgency to look outside China for new suppliers is greater than it was during Trump 1.0.
The peak US tariff on Chinese goods during Trump’s first term was 21%; it is 51% now. Besides, there was a workaround back then. A lot of Chinese-made consumer goods entered America via an exemption from tariffs for parcels below $800 in value. That cushioned the blow.
Also Read: Trump’s tariffs: Turfed out but raring to return
The actual drop in imports from Beijing may have been a lot lower than the 17% plunge captured in the 2019 US statistics. In the present conflict, though, even small-value items shipped from China or Hong Kong are being taxed at 54%. While that’s down from the 120% tariff at the peak of trade hostility, the 12 May truce is looking wobbly, with Trump accusing Beijing of violating its terms.
If they haven’t already done so, now is the time for importers to call their bankers.
A certain kind of lender can be an useful ally during a trade war, as a new study by Harvard University professor Laura Alfaro, together with economists from the Federal Reserve Bank of Atlanta and International Monetary Fund, shows.
By tracking supplier relationships with maritime trade data and mapping them against corporate loan information that banks report to the Fed, the researchers estimate that an average US importer, facing Trump’s 2018-19 tariffs, shelled out $1.9 million—or 5% of annual sales—to get matched to a new Asian supplier.
Also Read: A trade arrangement that leaves out the US could trump Trump’s tariffs
The expensive process forced importers to draw down on existing credit lines and take out new loans. This is where US lenders with expertise in Asian trade finance were of help.
“Tariff-hit firms with specialized banks borrowed at lower rates and were 15 percentage points more likely and three months faster to establish new supplier relationships than firms with other banks," the authors conclude. In other words, those importers that had access to trade-finance specialists benefitted not only from cheaper credit, but also from information about supplier networks.
Alfaro and her colleagues don’t say which banks did the heavy lifting. The Fed’s corporate loan data, known as Y14, is not in the public domain. But it’s not hard to make an educated guess. Citigroup, JPMorgan Chase, Bank of America and their British and European peers, such as HSBC Holdings, Standard Chartered and BNP Paribas , have long histories of financing international trade.
In Asian banking circles, some of them are known as ‘glocals,’ or global banks with sophisticated local knowledge. The experience they have gained by financing the region’s exports is both valuable and specific. As Alfaro’s study shows, “relationships with banks specialized in Europe (not Asia) have no effect on credit or trade outcomes for firms searching for suppliers in Asia."
Also Read: Tariff whiplash: The US truce with China offers hollow relief
Now, more than ever, US importers need to be mindful of their banks’ geographical footprint, even though the uncertainty around where to search for new partners is large enough to cripple decision-making.
Five years ago, China bore the brunt of customs duties; American taxes on the rest of the world were a manageable 3%. They’re approaching 16% now. The threat of much larger reciprocal tariffs is looming over both rivals and allies. The electronics supply chain is fearful because Trump has vowed punitive duties on Apple and Samsung if they assembled devices sold in the US anywhere overseas—not just China. The auto industry is caught up in Beijing’s export restrictions on rare-earth magnets, a tit-for-tat against Trump’s tariffs.
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Still, business owners can’t sit idle. Even if the current magnet crunch ends soon, they still have to explore Malaysia and India as potential alternatives—just in case the truce between Washington and Beijing collapses. Vietnamese and Cambodian factories may expand to fill orders for everything from Nike shoes to Lululemon Athletica clothing.
In markets where trade-finance specialists don’t have a presence, they acquire knowledge about local firms via a so-called network effect. According to Alfaro and her colleagues, borrowers have a higher chance of being matched with suppliers in countries where their lenders have correspondent-banking arrangements—or have previously participated in syndicated loan deals.
Trade finance is not just about lubricating cross-border commerce with money; it’s also about keeping business intelligence flowing.
For importers caught up in a tumultuous global conflict, a call to their bankers is a good starting point. ©Bloomberg
The author is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia.
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