Many machines and vehicles are ready to ship on September 27, 2024 at the Dock of the Oriental Port Branch of Lianyongan Port in Lianyongan Port, China.
costfoto | nuphoto | Getty Images
BEIJING – The US has tripled tariffs on Chinese imports. For Chinese exporters, it means raising prices for Americans, accelerating plans to diversify their businesses, and in some cases, halting freight altogether.
U.S. consumers could lose access to certain products in June as some American companies halted plans to import textiles from China, said Ryan Zhao, director of Jiangsu Jie Green Willow Textiles.
For products that continue to be shipped from China, it is “unpredictable,” depending on how much prices for US consumers will rise, he said in Chinese, translated by CNBC on Thursday. “It takes two to four months for products to be shipped from a Chinese port and arrive on the shelf of a US supermarket. In the last two months, tariffs have risen from 10% to 125% today.”
The White House has confirmed that the US tariff rate on Chinese products is virtually 145%. Tax Foundation Economist has essentially cut off most trade on CNBC’s “The Exchange.”
However, despite sources from China looking for alternatives, US-China trade relations do not change overnight.
Tony Post, CEO of US-based running shoe company Topo Athletic, said he plans to work more with Vietnam-based suppliers, in addition to his existing Chinese suppliers.
This year, when the first two rounds of US 10% tariffs were imposed, he said his four Chinese suppliers offered to split the costs in the topo. But now, “in the past few months, the cost of the product itself has been added to import duties,” he said.
“I will need to raise prices in the end, but I’m not sure how it will affect our business,” Post said. Before Trump began with tariffs, the Post projected revenue of nearly $100 million this year, mainly from the US.
Economic Fallout
Hope for a US-China deal to resolve trade tensions quickly declined as Beijing became nervous last week due to TIT obligations on American goods and widespread restrictions on US companies.
Due to sudden tariffs, shipments to the US to China are likely to increase by 80% over the next two years, said Julian Evans Pritchard, head of Chinese Economics at Capital Economics, late Thursday.
Goldman Sachs on Thursday cut China’s GDP forecast to 4% given US trade tensions and drag from slow global growth.
Exports to China to China account for only about 3 percent of China’s total GDP, but employment remains a major impact, Goldman Sachs analysts said. They estimate that around 10-20 million workers in China are involved in the US export business.
As Beijing is already trying to deal with slowing growth, one of its strategies is to help Chinese exporters sell more from home. China’s Commerce Ministry said Thursday it recently brought together major business associations to discuss measures to promote sales domestically and not overseas.
However, Chinese consumers are reluctant to spend, and are trendingly bolstered by yet another decline in consumer prices, data shows.
“China’s domestic market cannot absorb existing supply, but the additional amount is much less,” said Derek Scissors, a senior fellow at think tank at the American Enterprise Institute.
He expects Beijing to make concessions to the US, dumping products in other countries, replenishing losses, and following a playbook that will kill other companies. Bypassing goods to other countries could increase China’s local trade barriers, but subsidies exacerbate debt and deflationary pressures at home, Scissami said.
This year, China has promoted consumption and expanded its subsidies for consumer trade-in programs focused on home appliances. Li Daokui, professor at Ting Koh University, said on Thursday that CNBC’s “The China Connection” measures to promote consumption will be announced “within 10 days.”
It’s difficult to exchange
The US government has been encouraging manufacturers to build national factories, particularly in the high-tech sector, for the past few years, but businesses and analysts said it’s not easy to develop these facilities and find experienced workers.
“We cannot obtain comparable equipment from US sources,” Ford said last month in a US tariff exemption request for the manufacturing tools used to manufacture battery cells for electric vehicles. “US suppliers will not have any particular experience with the handling and heating processes.”
Tesla and other large companies have also filed similar requests for exclusion from US tariffs.
Large quantities of goods can be sourced primarily from China alone. Analysts at Goldman Sachs said 36% of US imports from China come only from suppliers based in Asian countries. They said that despite the new tariffs, it would show that US importers would be difficult to find alternatives.
Meanwhile, only 10% of China’s imports from the US rely on American suppliers, the report said.
The world’s second largest economy is also moving towards higher-end manufacturing. In addition to apparel and footwear, the US relies on China for computers, machinery, appliances and electronics, Allianz Research said last week.
Diversification
China was the second largest US supplier in 2024, with imports from China rising 2.8% last year to $43.895 billion, according to data from the US Census Bureau. Mexico has climbed number one since 2023, while the US imported from Vietnam, which has benefited from re-routing Chinese products, more than doubled between 2019 and 2024.
Zhao of Green Willow Textile said several large Chinese textile companies are moving some of their production to Southeast Asia.
Regarding his own company, “This year we are cultivating clients in Southeast Asia, Latin America, the Middle East and Europe to reduce our dependence on the US market,” Zhao said he cannot cover the costs of additional tariffs as the net profit of 5% last year was already low.
China’s trade with Southeast Asia has grown rapidly since 2019, making the region the largest trading partner in the country, followed by the European Union in 2024, followed by the US, according to Chinese customs data.
Chinese national president Xi Jinping is scheduled to visit Vietnam on Monday and Tuesday, followed by a trip to Malaysia and Cambodia later in the week, state media said on Friday, citing China’s foreign ministry.
“We think we have a bit of a carriage situation where new rules will come in to crack down on Chinese content for products that will eventually end in the US,” Hinrich Foundation Head Deborah Elms said on Thursday on CNBC’s “The China Connection.”
Trump suspended plans for a sharp hike on tariffs in most countries, including Southeast Asia, on Wednesday, but that wasn’t the case in China.
That suspension provided short relief to people like Steve Greenspon, CEO of Illinois-based Houseware Company.
“This suspension will allow us to continue our business as usual outside of China, but we cannot make long-term plans,” Greenspon said. “It’s hard to know how to pivot because you don’t know what’s going to happen in 90 days.”
Some analysts predict that economic reality could push the US and China into dealings.
Gary Dvorchak, managing director of Blueshirt Group, noted on Thursday that the latest tariffs have only been announced for the past few days, and that he expects duty ratchet to take a stance ahead of the transaction.
Despite offensive rhetoric, he believes that both countries often lose if tariffs are made permanent. Separating the US from China’s products would drive China into deeper depression, he said.
