US TARIFFS, THE CASE/ "China at 40%, we at 15%: Italian components can beat Chinese competition"
Tariffs: devaluing the euro and creating new supply chains for Italian component SMEs will open up new opportunities in the US, overtaking China.
For many companies, they're obviously a major problem, especially since they're imposed by a country that's a global reference market for several sectors. But tariffs, explains Gianclaudio Torlizzi, founder of T-Commodity , can, from a certain perspective, represent an opportunity, especially for Italian component companies.
Everything depends on Europe's and Italy's ability to capitalize on the advantage afforded by the US imposing higher tariffs on a fierce competitor like China. Beijing will face an average tariff of 40%, while we are stuck at 15%.
This circumstance can be exploited to the advantage of Italian businesses, provided the ECB lowers interest rates and devalues the euro against the dollar, but also provided that the Italian system is able to foster the creation of new supply chains or support the growth of those SMEs that have always constituted our productive fabric.
Why can tariffs, beyond the problems they pose to businesses, create the conditions for new opportunities for component manufacturers?
It's clear that tariffs, in what is a key market for many sectors, are detrimental to Italian exports. Meanwhile, the actual tariff Italian exports will face is between 11 and 13%, as a tariff of around 1.5% already existed. However, there's another consideration: the average US tariff against China will be around 40%, so there's actually a differential that favors Italian companies. I'm talking about the components industry, the industry in which Italian companies' biggest competitors on the American market are, indeed, the Chinese.
Is this favorable differential, around 25%, enough to guarantee new opportunities for businesses?
In reality, however, we must also do our part. There's one factor worsening the situation: the exchange rate, which essentially represents a sort of second tariff. Therefore, more dynamic management is needed from the ECB, which should push for rate cuts and pressure a lower euro against the dollar. The Chinese will likely mitigate the impact of the tariffs by devaluing the yuan. Then, however, there's the issue of industrial policy.
From this point of view, what should be done?
Meanwhile, this new scenario is destined to remain structural: those who believe that, once Trump leaves the scene, we will return to the old paradigm are mistaken. The American state will become accustomed to an influx of liquidity it previously lacked. According to White House estimates, it will reach $600 billion a year. And the burden of tariffs will not fall entirely on the shoulders of American consumers: those who work in industry know it will be equally distributed between exporters and importers. This is because exporters will need to safeguard their market share and, as long as they can, will shoulder part of the burden.
How should we proceed, then, in terms of industrial policy?
We must work to create new supply chains of Italian companies that can enter the market with turnkey projects or, where it is not possible to create new supply chains, develop the growth of our SMEs through incentives. This should not be done by demonizing SMEs, as certain liberal circles do. Italian small and medium-sized enterprises are doing very well, but it is clear that in a context of increasing competition, being able to produce with economies of scale will help further streamline the production process. This must be the heart of a new industrial policy, which has never been implemented before. It means creating aggregations between SMEs.
Which components can be favored in this context?
The one that serves large American companies. The future of Italian industry could be this: after having been a subcontractor to Germany, it could become a subcontractor to the United States. I'm referring to industrial components: systems, machinery, valves.
The 15% tariffs give us an advantage over China's 40%. Conversely, in sectors other than components, will we face competition from countries that have imposed lower tariffs than ours?
The 15% tariff is at the low end of the range. The British have 10%, but they don't manufacture and aren't a competitor to Italian companies. The Japanese also have 15%.
This could happen in the agri-food sector, for example, where there is fear of a backlash for wines.
Mid-range wines are obviously at risk, while high-end wines are much less so: they have such a well-known brand that consumers will be willing to pay 15% more.
(Paolo Rossetti)
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