Analysis: Who Will Bear the Brunt of Trump’s Tariffs?

By Bao Yunhong, Feng Yiming and Ding Yi

U.S. President Donald Trump has raised tariffs on Chinese imports twice since taking office in January, sparking debate about who will ultimately bear the brunt of his tough trade policies.

In late February, Trump announced an additional 10% duty on goods shipped from China, starting March 4. The new tariff came on top of the 10% extra tariff that the U.S. implemented on Feb. 4.

Theoretically, the tariff costs will be shared among consumers, U.S. importers and Chinese suppliers, with the party with weaker negotiating power likely to bear the brunt, said Hu Jie, a professor of practice at the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University.

It remains uncertain to what extent the added costs will be passed on to consumers given the complex process in which producers, distributors and other retail channels will negotiate over who will shoulder more of the burden, said a branding manager at a Chinese beverage company with a presence in the U.S.

Some analysts argue that the additional costs will be equally split between Chinese exporters and U.S. importers. But Yang Wei, general manager of a curtain manufacturer based in East China’s Zhejiang province, told Caixin that his U.S. clients are planning to raise retail prices by up to 10%.

Smaller suppliers often lack bargaining power in pricing negations with large U.S. importers. For example, China’s Ministry of Commerce has recently held talks with Walmart Inc. after the U.S. supermarket titan reportedly requested price cuts from some of its Chinese suppliers under the weight of the U.S. tariff hikes.

According to Hu, the average profit margin for Walmart’s major suppliers is around 5%, while for small and midsize suppliers, it can be as low as 2% to 3%. These thin margins mean these suppliers cannot afford to pay the cost of the tariffs, Hu said.

Also, Trump on March 12 reinstated the 25% tariff on all steel and aluminum imported into the U.S., a policy that will take a heavy toll on China, as the U.S. is a major destination for its aluminum exports.

In 2024, China exported 534,000 tons of aluminum products to the U.S., accounting for 16.3% of total Chinese aluminum exports, according to a report by industry consultancy Beijing Antaike Information Co. Ltd.

The report argued that Chinese aluminum-makers have long been a particular target in the escalating trade tensions due to the metal’s importance to industries that have proven especially controversial — electric vehicles (EVs), lithium batteries and solar cells.

A backlash among Western governments to imports of these products will disrupt aluminum exports, the report said, predicting that China’s aluminum exports will drop 12% this year.

Will Chinese suppliers get marginalized?

Washington’s tariff hikes in recent years have prompted some U.S. importers to seek alternative suppliers, according to Han Lijie, a partner at U.S.-based law firm Katten Muchin Rosenman LLP.

For instance, between January and August 2023, about 60% of Walmart’s goods came from China, down from 80% in 2018, according to data from ImportYeti.

In recent years, Walmart has gradually bought more from India to reduce its reliance on Chinese suppliers. The world’s largest retailer imported one-quarter of its goods from India between January and August 2023, compared with just 2% in 2018, Reuters reported in November 2023, citing data from ImportYeti.

“We want the best prices,” Andrea Albright, Walmart’s executive vice president of sourcing, told Reuters at the time. “That means I need resiliency in our supply chains. I can’t be reliant on any one supplier or geography for my product because we’re constantly managing things from hurricanes and earthquakes to shortages in raw materials.”

Despite these headwinds, China’s extensive industrial chains and certain Chinese products with technological advantages will be difficult to replace, said Chen Hui, a lawyer at Beijing Yingke (Shanghai) Law Firm. But the higher U.S. tariffs mean many less competitive Chinese suppliers will be washed out in the future, Chen added.

Chen said the tariff hikes are part of Washington’s plan to revive U.S. manufacturing regardless of whether American-made products will be more expensive. For instance, Chen said that the additional U.S. tariffs will increase the production costs of U.S. pharmaceutical companies as they rely heavily on ingredients imported from China and India.

There are several other methods for Chinese manufacturers to mitigate the negative effect of the higher U.S. tariffs, including relocating their supply chains outside China, enhancing their production efficiency and exploring business opportunities in non-U.S. markets, according to Hu.

But Han warned that the U.S. may further tighten its country of origin rules for imported goods, increasing risks for Chinese companies that plan to build manufacturing facilities in other countries to sidestep U.S. tariffs.

Sun Yanran contributed to this story.

Contact reporter Ding Yi (yiding@caixin.com) and editor Joshua Dummer (joshuadummer@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.

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