Sat, Apr 14, 2018 - Page 5 News List

Trade war would raise US prices, China producers say

Reuters, DONGGUAN, China

An employee carries aluminum bars inside a factory in Dongguan in China’s Guangdong Province on Tuesday.

Photo: Reuters

Allan Chau (周傑浩), the general manager of a Chinese factory making precision metal parts for US customers, is still calling it a “proposed” trade war, but that has not stopped him from planning for the worst.

Unlike last year, when US President Donald Trump sounded protectionist warnings that were largely dismissed as bluster, Chau and other factory bosses across China said the risks from this trade spat are now far more tangible.

As a result they warn of a possible wave of small factory closures, a shift of some production away from China and the use of questionable practices to dodge increased tariffs.

“Before, we didn’t think we’re affected because we’re doing little metallic parts,” said Chau at his three-story beige-colored plant in Dongguan. “[Now], everybody is talking about this proposed war.”

The city of Dongguan is one of the main export hubs in southern China’s Pearl River Delta. The region has been dubbed the “workshop of the world” and accounts for about a quarter of China’s exports.

As hundreds of computer-controlled lathes hummed around him, fashioning slender aluminum, steel and brass rods into intricate parts, Chau pointed out a car valve, the size of a thumb — used in car braking systems assembled at US plants — as an example of a product caught up in the storm.

Of the 1,500 or so metal parts made in Chau’s plant, including needles for espresso machines to puncture coffee capsules, he said that about 200 could be hit by the proposed US tariffs, which stand to affect US$50 billion worth of Chinese goods.

“If they’re going to propose 25 percent tax on those things, we have a lot of countermeasures we’ve got to take to keep ourselves alive,” said Chau, whose company, Tien Po International, has run factories in China for more than 30 years.

Chau said he is now considering building a warehouse in Malaysia, Vietnam or Thailand, where he could ship his goods for re-export, or setting up a small factory in a Southeast Asian country to avoid the increased tariffs altogether.

China’s reliance on exports as an economic driver has declined over the past decade, with total exports as a percentage of GDP dropping to 18 percent last year from 35 percent in 2006, research by Credit Suisse showed.

However, at a more micro level, at the heart of China’s vast industrial supply chains, the tariffs stand to exacerbate the pain of already struggling plants.

Many have already been buffeted by an appreciating currency, soaring wage costs and labor shortages as a younger generation shuns a life on the factory floor.

The Trump threat has been a further sideswipe for many exporters and soured sentiment, even as the full implications are unclear.

“The US is a huge market and some of the companies, especially those less competitive, may be washed out,” said Danny He (何東旭), the founder of Alpha Lighting, a small LED maker in Dongguan with 100 workers.

In interviews with six other Chinese manufacturers of LED lighting products, another affected sector, four said they expect some closures of Chinese factories, particularly those making more generic products like bulbs and LED panels.

Places like Dongguan, with large clusters of grittier industrial plants, are especially vulnerable.

Dongguan’s economic growth of 8.1 percent last year, while robust, does not fully reflect its long struggle to upgrade rusting factories and catch up with the likes of neighboring technology powerhouse Shenzhen.

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