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Message: <blockquote data-quote="Jaysen" data-source="post: 427" data-attributes="member: 1">Hey,Sure -The impact of US tariffs on China on business and law firmsSo let’s start with what Trump is trying to do. For a long time, China has been accused of stealing intellectual property and participating in unfair trading practices. It’s alleged that in many deals Chinese companies try to get foreign companies to part with their IP. They request a lot of information during the due diligence phase of an acquisition and they require the disclosure of a lot of confidential information. It’s not always clear whether the state is involved in this. But it is true that they force US companies to partner with domestic producers in most industries and that they don’t want companies to operate without strict oversight.Foreign lawyers are under restrictions in China. But they can act as international counsel. Intellectual property lawyers can also help foreign companies protect their technology in China. For example, they may encourage European companies to register their patents or trademarks in China, or they could negotiate and prepare confidentiality agreements. They may have to do this in conjunction with local lawyers because they are prohibited from advising on PRC law or appearing in Chinese courts.If Trump can use these tariffs to bring China to the negotiating table then that’s a good thing for foreign intellectual property law. That means protecting billions in research and development. A testimony last year estimated IP theft cost between $225bn and $600bn.But if the tariffs go ahead then many other businesses will be hurt. Many tech companies rely on Chinese suppliers. For example, Apple, Intel and Nvidia all have plants in China. They rely on these low-cost factories for manufacturing and assembly. The tariffs will raise the cost of exporting their product components. So that means they will either have to cut their costs or raise the price of their products. Many of them also sell to Chinese consumers. That will affect their profit margins and their ability to compete. For example, let’s suppose Apple raises the price of the iPhone to compensate for rising costs. Apple’s rival Samsung won’t have to raise the price of Samsung phones because most of their manufacturing is in South Korea. If consumers buy fewer iPhones then Apple may want to exit China and find an alternative supplier. Lawyers can help these tech companies to restructure and advise them on the regulations in a different jurisdiction.The consequences extend to different industries. For example, over 97% of shoes and clothes sold in the US were imported. Mostly from China. That’s why over 100 retailers including many of the largest brands in the US wrote to Trump urging him to reconsider. They could face higher costs and in return push up the price of their goods. If the tariffs lead to less consumption of products then that will reduce their profits. That could have a number of knock on effects. It could cause job losses, depress financial markets and lead to slower growth in the economy. These events could cause the Federal Reserve to reconsider a rise in interest rates. Sure, that’s good for some companies, but it’s a problem when the cause is market uncertainty.Protectionism dampens business confidence. That means companies may slow down investments in the US and China. When Trump put tariffs on solar panel imports earlier this year, a number of solar utilities cancelled planned projects. For example, SunPower, a solar company based in California put a $20m expansion on hold. If companies aren’t carrying out big expansion projects then they need less financing. They’re also less likely to go ahead with acquisitions. All of this would put a downward pressure on M&A, banking and project finance work for law firms. If there’s less work to go around then there’s more competition, which may reduce the fees that law firms can charge. There’s where alternative delivery models come can make the difference in a successful pitch.Alternatively, companies can take steps to mitigate their risks. For example, let’s look at acquisitions. We’ve already seen US regulators intervene when Broadcom tried to buy Qualcomm, and there are further plans to limit Chinese investment in the US. Chinese acquirers could take out insurance policies to cover a failed acquisition. These ‘reverse break up fees’ are drafted in transaction documents, so if a US regulator blocks a takeover, they get a pay-out. Chinese acquirers could also buy representations and warranty insurance. You can find more information in the acquisitions guide: <a href="https://www.thecorporatelawacademy.com/why-do-you-want-to-be-a-commercial-lawyer/" target="_blank">https://www.thecorporatelawacademy.com/why-do-you-want-to-be-a-commercial-lawyer/</a>. But in short, the seller makes promises to the buyer about the target company. These are negotiated and drafted by lawyers. If they’re breached, the acquirer is entitled to a remedy. Representation and warranty insurance shifts the risks from the seller to an insurer. So sellers may be more willing to sell despite this uncertainty and buyers can be confident that they have a recourse.The impact could also extend to financial firms. At the end of 2017, China announced plans to ease limits on foreign ownership of Chinese banks, a decision that was celebrated by the US financial market. But soured relationships could cause China to reverse course and affect China’s progress of greater liberalisation. Many City law firms have been operating in China for years. It’s expensive and difficult to compete with local law firms, but they hope to be benefit when China does open up its market. If this becomes an unlikely prospect then law firms may reduce their presence in China and close offices. This happened to Linklaters in India. The firm had a formal alliance with an Indian law firm for a number of years in the hope of liberalisation. When that didn’t happen, Linklaters ended the partnership.When it comes to retaliation, China has a number of tools at its disposal to make life for US businesses difficult. It could further regulate US companies doing businesses in China, limit domestic deals with US companies, discourage Chinese consumers from buying US products or introduce more damaging tariffs like aircraft, cars and soybeans. I’ll take aircraft as an example. Over the next 20 years, China is projected to order $1.1 trillion worth of aircraft. China is Boeing’s largest customer and buys one out of every four of Boeing’s jetliners. The news of the tariffs sent Boeing’s stock down. Many fears that China could retaliate by cancelling existing orders or shifting over to a European manufacturer like Airbus instead.It’s also a problem for multinationals who do a lot of global trade. Their share price has been hit the most as investors worry about the impact of a trade war. If things develop, companies should develop contingency plans. Lawyers can help them to review supply contracts. Commercial lawyers may look into the duration of these contracts and whether an early termination is possible. This also applies to the suppliers of the suppliers. If they’re likely to be affected, it’s important that companies prepare for disruption and reduce any dependence on a single supplier. Lawyers can help companies to restructure. They may want to sell off an unprofitable or uncertain part of their business in an asset sale, or help companies to consolidate supply chains. Law firms should also regularly monitor these events on behalf of clients – that’s where intelligence and the use of tech can be useful.Legal certainty is also important for international trade. That’s up to the World Trade Organisation (“WTO”). The US and China have both filed complaints at the WTO and as long as both countries follow the WTO rules then an escalating trade war should be avoided. But it’s a problem if they don’t. That could give countries permission to ignore the rules. Companies that are unable to rely on the international law may choose to produce locally or only trade with countries they feel they can trust, rather than the cheapest. Competition and trade lawyers can advise multinationals if they are uncertain. It becomes important for contracts to be airtight. That means unambiguous drafting and clauses that give parties recourse if things go wrong or if international events lead to problems outside of their control.</blockquote>

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