Tue, Oct 23, 2018 - Page 9 News List

China’s factory heartland braces for Trump’s big tariff hit

Bloomberg

In China’s manufacturing heartland around the Pearl River Delta, US President Donald Trump’s 10 percent tariffs are causing little concern.

The 25 percent duties that loom next year are another matter.

Ben Yang, a furniture maker producing contemporary designs out of his facility in Dongguan — about 48km from Hong Kong — said that if those higher charges materialize from January as planned, the US share of exports from his Sunrise Furniture Co could plunge from 90 percent to less than one-third.

“Our major rival is Vietnam and 10 percent tariffs aren’t enough to make the difference,” said Yang, 48, who supplies retailers including Rooms To Go Inc. “But 25 percent tariffs are a worry. There will definitely be a short-term impact; Americans may have to accept higher prices.”

Yang’s situation mirrors that of the economy as a whole as it heads toward the close of the year: The negative headlines that have dominated the year have not yet translated into a sharp contraction of output, but rather the gradual slowdown that had already been expected.

It is what comes next that is preoccupying business owners, as interviews with about a dozen manufacturers in the delta over the past 10 days showed. The region serves as both China’s traditional hub for manufacturing everything from toys to chemicals, as well as a higher-tech location that hosts the headquarters of companies like Tencent Holdings Ltd.

Exporters there are now seeking ways to adjust by diversifying sales to other overseas markets and domestic consumers.

“Going beyond 10 percent, the disruption increases exponentially,” said David Loevinger, a former China specialist at the US Department of the Treasury and now an analyst at fund manager TCW Group Inc in Los Angeles.

The Chinese government has effectively shelved its campaign to curb indebtedness and added limited stimulus measures, and the approach of tariffs has actually helped boost sales abroad as exporters rush to beat the higher charges.

“The impact of China-US trade frictions on Chinese companies is limited overall and the risks are controllable,” Chinese Ministry of Commerce spokesman Gao Feng (高峰) said.

Most companies are confident and all levels of government are introducing measures to help companies through these tough time, he said at a news briefing on Thursday.

“To those whose products are highly competitive and difficult to replace, the impact is little. To those whose products can be replaced, the impact is that the costs have increased and the orders have reduced. Only very few companies face the danger of shutting down and cutting jobs,” he said.

Third-quarter economic data, released on Friday, shows the muted impact of Trump’s tariffs.

The economy, in the throes of a policy-induced slowdown, ticked down a notch, expanding 6.5 percent from a year earlier, compared with 6.7 percent in the previous quarter. It was the slowest quarterly expansion since 2009.

Trump last month imposed 10 percent tariffs on a further US$200 billion of Chinese products, including on furniture, and said those could rise to 25 percent from January.

He had already imposed 25 percent tariffs on US$50 billion worth of goods. China has retaliated and Trump has threatened to levy duties on all Chinese exports.

The US government opened another front in its campaign to change the economic relationship with China on Thursday, announcing plans to withdraw from a postal treaty that the US administration says gives Chinese companies an unfair advantage over US firms.

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