Small Chinese manufacturers are worried about Trump’s tariff plans Business and Economics

Taichung, Taiwan – When Li Wei took over the management of his father’s glassmaking business in northern China’s Cangzhou in 2020, he immediately began to streamline the company’s operations.

Li moved one Hebei Yiyue Glass Products factory from its downtown location to a location on the outskirts of Cangzhou, providing better access to key road networks and more space for expansion.

At the same time, Li changed the company’s main focus from selling glass components to Chinese customers to exporting finished glass products to international customers.

Today, he oversees a successful export business selling mugs, pots and pans around the world and employs twice as many people as when he took over.

Much of Li’s success is due to the demand for his products in the United States, which in recent years has accounted for 80 percent of his company’s exports.

But now, Li and his colleagues are worried that their success could be undermined if former US President Donald Trump is re-elected to the White House on November 5.

Trump, who is running neck-and-neck with Vice President Kamala Harris in a race too close to call, has floated plans for tariffs of 60 percent or more on all goods to the US from China.

Economists have dubbed Trump’s plans “Tariff War 2.0”, after the Republican imposed tariffs of up to 25 percent on a range of Chinese goods during his first term in office, prompting Beijing to announce its own tariffs.

“Such an increase in tariffs by the United States will have a big impact on me and my business,” Li told Al Jazeera.

“It will lead to our products becoming less competitive, and at least our sales in the US will drop significantly.”

Since Trump’s announcement, Li has been working for 12 days to identify other export destinations that could offset the decline in his American business.

So far, he has not been able to find another place in the world’s largest market.

“I am busy trying to find solutions, but some days the situation gets worse,” he said. “Normally, I don’t like to think about it.”

Gary Ng, senior economist at investment bank Natixis in Hong Kong, said Chinese traders have serious reason to worry if Trump re-enters the White House and follows through on his plans.

“With tariff levels at 60 percent, many Chinese manufacturers will no longer be able to compete or be able to turn a profit with their exports to the US market,” Ng told Al Jazeera.

“For Chinese companies that are mainly exposed to the American market, this can be a problem, and they can face a lot of pressure.”

Among the exporters already feeling the pressure is Sotech, a Shanghai-based advanced electronics manufacturer, according to the company’s sales manager Dong Sion.

“I was shocked,” Dong told Al Jazeera, referring to when he first heard about Trump’s proposals.

More than 90 percent of Sotech’s products, which include smart glasses, are shipped overseas, with about 30 percent of those products shipped to the US.

“If tariffs are imposed at 60 percent, that would disrupt our US business or even destroy it completely,” Dong said.

“And we will be forced to reduce staff.”

For some Chinese companies, the additional tariffs could be a fatal blow at a time of already challenging conditions in the world’s second-largest economy, said Allan Von Mehren, senior analyst and China economist at Danske Bank.

“There could be big consequences for China,” Von Mehren told Al Jazeera.

The US is China’s top export destination, taking in more than $400bn of its goods each year.

With so much trade at stake, UBS has estimated that imposing a 60 percent tariff, on top of existing tariffs, would reduce China’s gross domestic product (GDP) growth by 2.5 percent over the next 12 months.

Such a blow would come at an inopportune time for the world’s second-largest economy.

An ailing construction sector, low consumer confidence and household spending well below the global average are impacting growth, while the country’s investment-driven, export-led development model is struggling to keep pace.

Faced with such headwinds, Chinese authorities are widely seen as unlikely to meet the government’s growth targets of around 5 percent – a challenge that will become more difficult if Chinese exporters lose access to the US market due to the new tariffs.

Lily Wang, a recent university graduate who works at Li Wei’s glass manufacturing company outside Cangzhou, said she fears the new tariffs combined with China’s poor economic condition will lead to more unemployed workers and worse working conditions for those who are unemployed. they work.

“Chinese employers are already cutting a lot of things, and if trade with the US goes down, I’m worried it will get worse,” Wang told Al Jazeera.

The real damage to China’s economy from the tariffs may depend on companies’ ability to adapt, Ng said.

“Some companies may try to change their export structure or move their product to other countries and ship to the US from there,” he said.

Some Chinese companies have already taken these steps.

At Hebei Cangzhou New Century International Trade, a construction materials company in Hebei province that sends about 40 percent of its exports to the US, executives are considering working with Indonesian manufacturers.

“The 60 percent tax rate cannot be applied to our export profits,” Vice President Lucy Zhang told Al Jazeera.

“So, we’re looking at ways to export indirectly to the US instead.”

At the same time, the Chinese government was working to nurture new markets for Chinese merchants.

In September, Beijing hosted 50 African countries in the China-Africa Cooperation Forum, which was aimed at promoting the import of African products from Africa, especially solar panels and electric vehicles.

China is Africa’s largest trading partner, and the leading trading partner of many South American countries.

“Beijing has known for a long time that relations with the US will not improve much in the near future and has tried to get better access for its companies to countries where bilateral relations are friendly,” said Von Mehren.

Despite China increasing trade with friendly countries, it is unclear whether there will be a significant shift in Chinese goods to the US.

In some cases, US restrictions on Chinese exports have been quickly replicated elsewhere.

In May, US President Joe Biden’s administration announced that tariffs on Chinese electric cars would be raised to 100 percent, closing the door on the US market.

The European Union announced tariffs of up to 38.1 percent on Chinese EVs the following month.

Since then, Turkey and Canada have followed suit with similar measures.

“As other countries take action against Chinese exports, concerns can quickly set in among other countries that more Chinese money will be dumped into their markets, causing them to take action as well,” Von Mehren said.

Trump has also suggested he would impose stiffer tariffs on Mexico, where Chinese EV companies are considering building new production facilities to avoid tariffs.

“All I do is ‘I’ll put 200 or 500, I don’t care.’ I’m going to put a number where they can’t sell one car,” Trump said earlier this month during an interview with Fox News.

China has reacted to the various trade measures differently, launching investigations against the dumping of European pork and Canadian canola, for example, and imposing export controls on exotic materials used in the production of semiconductors.

While aimed at China, Trump’s tariff hikes could also be felt heavily in the US.

In an analysis published in September, the Peterson Institute for International Economics estimated that these measures would cause a 0.4 percent increase in inflation in 2025 and a 0.23 percent loss in GDP in 2027.

Inflation and GDP losses will double if Beijing retaliates, the think tank said.

Liu Pengyu, a spokesman for the Chinese embassy in Washington, DC, said there will be no winners in the new trade war.

“Manufacturing restrictions or protectionism will disrupt the normal flow of trade and the stability of the production and supply of goods that nobody can achieve,” Liu told Al Jazeera.

Back in Hebei, Li Wei struggles to see the rise of consumers or workers in Trump’s plans.

“But I don’t know – those in charge do what they want,” he said.

“And all of us are paying the price.”