Analysis: Chinese Exporters Founder Amid Rising U.S. Tariffs
By Feng Yiming, Qu Yunxu and Wang Xintong
In its most aggressive trade policy to date, the Trump administration has announced sweeping global tariffs on dozens of countries, including a new 34% duty on China, delivering another blow to Chinese exporters already teetering amid trade protectionism in the West.
On Wednesday, U.S. President Donald Trump announced “reciprocal tariffs” ranging from 10% to 49% on nations including many of America’s key trading partners such as China and the European Union.
The new tariff is set to take effect on China on April 9 and applies across a broad range of goods, surpassing expectations in both scope and severity. It is in addition to the 20% duties introduced by Trump since he returned to the White House on Jan. 20. The average U.S. tariff on imports from China will be around 65%, after taking into account taxes already in place during previous administrations, economists at Nomura Holdings Inc. wrote in a report Thursday.
China “firmly opposes” the reciprocal tariffs and will “adopt countermeasures” to safeguard its rights and interests, a Ministry of Commerce spokesperson said Thursday in Beijing, referring to the tariffs as “a typical practice of unilateral bullying,” according to state media.
The extra levy is likely to hit Chinese exporters hard. In 2024, China exported $524.66 billion worth of goods to the U.S., accounting for 14.7% of the Asian nation’s total exports. Key categories include electronics, base metals such as steel and aluminum, and a wide swath of labor-intensive goods such as textiles, plastics, apparel, toys and furniture.
But external demand is a fragile support for Chinese exporters. The pressure of Trump’s initial 20% tariffs, implemented in two 10% hikes, is already visible in trade data, with exports to the U.S. of a variety of Chinese goods, including garments, furniture, footwear and toys, in the first two months of the year down between 7% and 18.3% by value, customs data showed.
Analysts at China Chengxin International Credit Rating Co. Ltd. expected the sweeping new tariff to deal a heavy blow to labor-intensive sectors and upstream suppliers. They also warned that Chinese exports would face growing uncertainty amid the escalating trade war with the U.S. and global supply chain restructuring.
But the impact on Chinese companies is not limited to the tariff on China, as several countries that Chinese exporters have used to sidestep existing U.S. import duties have also been hit with new tariffs, Nomura’s economists said. Many Chinese firms have shifted manufacturing and supply chains to Cambodia, Vietnam, Thailand and Malaysia, which face 49%, 46%, 37% and 24% reciprocal tariffs, respectively.
Industrywide pains
The new tariffs come as a crushing blow to already squeezed Chinese manufacturers. A handbag-maker who operates factories in South China’s Guangdong province and Cambodia said tariffs on small bags shipped from China to the U.S. were already as high as 45% and that adding another 34% would inevitably intensify the impact on both Chinese companies and American customers.
The handbag-maker added that his Cambodian plant may not survive the huge hike on the country’s exports, which were once largely exempt from U.S. trade duties.
Before Trump returned to office in January, existing U.S. tariffs already put enormous pressure on Chinese manufacturers, with many opting to split the cost with their U.S. customers, according to the handbag-maker. But Trump’s new tariffs further squeezed their profits, and some are now down to shipping at break-even just to keep the relationships with their customers, he said. “Some big factories might be selling goods worth hundreds of millions of yuan a month, but profit margins are close to zero. Another tariff hike will break that.”
In the mid-to-long term, these orders will inevitably be lost, he noted. “The U.S. accounts for 30% of the global market for shoes and clothes,” he said. “There’s no replacing it overnight.”
The pain isn’t isolated. A footwear exporter in Qingdao, a port city in East China, said his company has been splitting the earlier 20% tariff with clients. He said the new tariff will force further negotiation. “Few companies even have 10% margins anymore, but it’s still better than closing up shop.”
He also expected the number of orders to drop this year.
While some manufacturers Caixin spoke to have found it hard to pass tariff costs onto their U.S. clients, a glassware exporter in the northeastern port city of Dalian said there was no possibility of compromise. “Our prices already reflect razor-thin margins,” he said. “I heard some companies are compromising — but I’d rather lose the U.S. market than cave.”
Supply chain shifts
Many U.S. importers are now rushing to diversify supply chains, fearing more tariffs in the future. “They believe it’s no longer safe to rely on China’s supply chains,” said Han Lijie, a partner at international law firm Katten Muchin Rosenman LLP.
Walmart Inc. is a case in point. According to data provider Import Yeti, 60% of the retail giant’s imports came from China in the first eight months of 2023 — but that’s down from 80% in 2018. Across the same period, the share of its imports from India rose from 2% to 25%.
The latest tariff hike also casts a shadow over Chinese manufacturers’ plan to dodge tariffs by shifting production abroad. Popular destinations for Chinese manufacturers such as Vietnam, Cambodia, Indonesia and Malaysia have become less advantageous.
China’s Ministry of Commerce is encouraging exporters to shift to domestic markets. At a March 25 press conference, ministry official Li Weizheng said the government will support exporters in building domestic sales channels and integrating trade standards to lower the cost of shifting to domestic markets.
But the Qingdao shoe trader pointed out that there’s no demand for his products in China as they don’t align with local preferences. “If we put our products on the domestic market, we probably couldn’t sell a single pair.”
Chen Hui, a trade lawyer at Yingke Law Firm in Shanghai, believes the new tariffs will drive market consolidation, as domestic low-end suppliers may be forced out. He also noted that innovation and industrial upgrading are key to countering U.S. tariffs.
China on Thursday urged Washington to immediately cancel its tariff measures and “properly resolve differences with its trading partners through equal dialogue,” the commerce ministry spokesperson said.
Contact reporter Wang Xintong (xintongwang@caixin.com) and editor Jonathan Breen (jonathanbreen@caixin.com)
caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.
Image: suriya – stock.adobe.com