(Bloomberg) — Executives at the world’s biggest trade fair in China found themselves staring into the abyss as the seams of global commerce come apart.
For many visitors to the Canton Fair, held in the southern metropolis of Guangzhou since 1957, shifting into reverse gear is hardly an option, even as prohibitive tariffs imposed on Chinese goods by the US make decoupling between the world’s two biggest economies a reality.
Take Paul McGrath, who lamented the fate of his business at the exhibit. “This is just a disaster,” he said.
For the past two years the New Jersey resident had been planning to launch a fresh pet food maker in the US and saw the first shipment of 400 boxes leave China in January, the month when Donald Trump’s return to the White House threw global trade into chaos.
After the ship was held up at the Panama canal on its way to Newark, McGrath’s shipment arrived a few days after the 20% tariffs — announced at the start of the new trade war by Trump as punishment for fentanyl trafficking — went into effect, adding $5,000 to his import bill. Now, he’s looking at multiples of that for any future shipments, and responded by raising the retail price by a third to $399 for his product, which is wholly made in China.
“We all knew tariffs were coming, but this is kind of ridiculous,” McGrath said, referring to a cumulative 145% in new duties now applied by the US on most imports from China.
The American presence was very thin on the ground as the trade fair got started on Tuesday.
But the new tariffs were at the center of every conversation — just as they already dominate the waterways that ferried almost $700 billion of goods exchanged between the US and China just last year.
A sales manager at one shipping company estimates about 70% of its shipments to the US have been canceled or halted after Trump raised tariffs above 100%. The company even recalled ships that had already left the port after US buyers called off orders.
But while the 145% have created a hard stop for exporters who can’t make a profit, Trump’s 90-day reprieve for countries like Vietnam and Thailand is also spurring Chinese firms to double down on their investments in Southeast Asia to circumvent the US controls.
US buyers have been scrambling to find factories in the region to ensure their inventories don’t dry up.
Some Chinese companies have already had to cut factory staff after their order dried up overnight. But exhibitors at the Canton Fair advertised their overseas factories and spoke about plans to ship more from locations in Southeast Asia.
Alex Student, chief of Impulse Merchandisers — a car accessories importer based in California — said he’s been turning his attention to securing deals with factories in Southeast Asia.
“We’re going to have to take a more defensive position,” he said. “The best thing I can do right now is direct all my attention to all the space I have in my existing retailers and finding those items from elsewhere other than China.”
His company’s art files for “Made in Cambodia” or “Made in Thailand” are templated and ready to go in four minutes, he added.
Canadian firm Forno is also looking to move production of kitchen appliances such as fridges from China to get around the tariffs. Last year it imported 6,000 containers from China to North America. It has over six months of stock in warehouses in the US, according to company founder Jacques Houle, who said his suppliers are already moving to Southeast Asia.
In about half a year, those companies should be ready to produce, he said Tuesday, and the firm could then restart shipments to the US.
“The China-US relation is beyond salvation — this change of gears is irreversible,” said Dan Wang, China director of the Eurasia Group.
“With the demographic changes, we are looking at the last generation that makes manufacturing overcapacity possible,” Wang said. “Young generations are going to work in services. China’s future manufacturing capacity will not be in China, it’s going to be in other countries by investing in them now, like the Asean and global south.”
It’s similar to a message carried by Chinese President Xi Jinping on his first overseas trip this year. During a stopover in Vietnam, he urged it to jointly oppose “unilateral bullying,” in an attempt to keep Southeast Asian leaders from cutting deals with the US at Beijing’s expense.
The effects of the sudden spike in tariff rates this month is already starting to show up in the data, with China’s ports handling 10% less cargo last week than the week before.
Cargo volume was down 4% from the same week in 2024, according to Ministry of Transport data released Monday, although international air freight was still high.
“When the tariffs rate was around 20% or 30%, we took them seriously, but the numbers now are like a joke,” said Vicky Yu, a sales manager at a home appliances company based in eastern China, echoing an official statement by Beijing last week which said that the US actions were “a joke.”
But the loss in sales this month is nothing to laugh at. One company that makes appliances and a heated mattress topper said sales of 100 million yuan ($14 million) to the US dried up overnight.
The company has been trying to develop new customers, even attending a trade show in Germany this year, but so far those new customers represent only a fraction of its sales to the US.
US firms are also in the firing line. Some are taking a hit since their imports are now much more expensive. Others are in trouble because China has imposed its own tariffs or is suspending purchases of US goods, such as Boeing Co. planes.
Even so, one American businessman wandering the trade show in Guangzhou was a little more sanguine.
Jason, an executive for an East Coast-based maker of baby products who asked to be identified only by his first name, said his company had prepared for this moment by diversifying where it makes its goods.
The company opened a new factory in Malaysia about a year ago after a hard lesson learned during the first Trump administration and seeing a chance that he would be reelected.
The whole facility was built in China and then shipped to Malaysia. It’s now exporting to the US, while made-in-China products are sent elsewhere in the world.
While that option may work for some people, the US still absorbed about 15% of China’s direct exports last year — and more if products going via other countries are included.
The loss of that market could be catastrophic for some firms, and the fallout will likely spread to other countries.
“Tariffs indirectly affect us because it may cause some factories in China to reduce their sizes as they lose export volume,” said Jacques Ivo Krause, foreign trade director for Mondial, a Brazilian home appliance company. “Maybe some will even have to close. It’s not easy to find substitutes to US imports.”
—With assistance from Andy Lin and Yasufumi Saito.
