Chinese Firms May Be Switching Codes to Skirt U.S. Tariffs: UBS

(Bloomberg) -- Companies exporting goods from China to the U.S. may be altering customs codes on their products to circumvent tariffs, according to a new report from analysts at UBS AG.

"Surging export growth of goods not on tariff lists may suggest both front-running and bypassing activities," UBS economists led by Zhang Ning wrote in the Dec. 10 report. "We think some exporters may have bypassed U.S. additional tariffs through various ways, likely including altering HS codes of their export goods (to codes without additional tariffs), some anecdotal evidences of which have been reported."

The UBS economists compared growth in exports of goods on lists that have been subjected to tariffs so far as part of an ongoing trade war between China and the U.S. with those that haven’t. They found that exports of goods subjected to tariffs have begun to decline following a brief acceleration in growth earlier in the year, while those not yet subjected to tariffs have surged.

"A very illustrative example comes from the sector of electrical machinery and equipment (HS 85), which accounts for 29 percent of U.S. total imports from China in 2017," they wrote, noting that growth in exports of goods in that category jumped 39 percent from a year earlier in October after growing just 2 percent in the third quarter of 2018.

Chinese Firms May Be Switching Codes to Skirt U.S. Tariffs: UBS

"Evidence of front-loading, likely tighter scrutiny of exports on the tariff lists by the U.S., and the persistent threat of additional tariffs mean China’s future exports to the U.S. face more downward pressure."

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