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Sunny Hu was about to go to bed when her phone lit up bearing bad news for her outdoor furniture business: More US tariffs just dropped.
“I’m speechless. I feel like there’s nothing I can do,” said Hu, whose company makes patio sets in eastern China and sells mostly to American retailers. The next day, her US sales team brought another dreaded update — some customers held their orders because of Donald Trump’s torrent of levies.
Trump’s rapid-fire measures are rippling across a sector that powered almost a third of China’s growth last year. The tariffs look set to inflict pain on both sides of the trade, and it’s unclear whether Trump will keep pushing them ever higher.
The speed and scope of Trump’s actions have raised anxiety across Chinese factories, many of which are already operating on low margins. That has added urgency for Chinese policymakers to boost domestic consumption and for factories to find buyers outside the world’s largest economy.
The tariffs have also spawned a fight over who will ultimately pay for them. US Treasury Secretary Scott Bessent said this week that Chinese manufacturers would “eat” higher prices, while exporters in the Asian powerhouse are refusing to absorb the full costs of at least 20% levies.
Hu said that her company, Hangzhou Skytech Outdoor Co., is negotiating with US businesses to share additional costs.
“The American consumers are going to pay the price for the tariffs,” she said.
Splitting the Bill
Trump’s tariffs have triggered delicate bargaining across the Pacific, between Chinese exporters looking to keep selling to a lucrative market and American importers who have come to rely on the manufacturing behemoth for cheap and reliable output.
A garment manufacturer in Zhejiang province said US clients are requesting discounts as high as 10%, although its thin profit margins mean the company can only offer 2% to 3%. The firm, which earns tens of millions of dollars in annual revenues, asked not to be identified to avoid jeopardizing business relationships.
“This is much worse than the first trade war,” said Zheng Tao, an export trader of car parts. “My biggest concern is the clients feel it’s a big torture to do business in such an uncertain environment that they’d rather pay a little more to switch to local suppliers for certainty.”
Also jolting was Trump’s abrupt cancellation of the “de minimis” rule, which allowed packages valued under $800 to enter the US duty-free. The policy change largely spared factories that sell to American businesses in bulk, but would hurt online retailers like Shein Group Ltd. and PDD Holdings Inc.’s Temu.
Shein’s US sales fell as much as 41% in the immediate days following the removal of the exemption, while Temu saw a drop of as much as 32% during the period, according to Bloomberg Second Measure, which analyzes credit and debit card data. Both companies’ sales recovered later in February.
While temporarily reversed, the move sent “a strong signal that Chinese suppliers would have to face tougher regulatory challenges if they want to keep their US businesses,” said Wang Xin, who heads the Shenzhen Cross-Border E-Commerce Association, representing some 3,000 exporters. “We need to get ready to operate in an even more uncertain and difficult global trade environment.”
A complete repeal of the loophole could wipe out much of the estimated $50 billion in such shipments that went to the US last year, according to a Bank of America report. That was almost 10% of all Chinese goods exports to the US.
Cloudy Outlook
Adding to the uncertainty is a looming deadline next month for the US Trade Representative to report on China’s compliance with the phase-one trade deal negotiated during Trump’s first term. The report could trigger yet another round of tariffs.
This may accelerate efforts for some companies to move their production overseas to dodge US tariffs and other trade barriers. Shein is asking some of its top apparel suppliers in China to set up new production capacity in Vietnam, with incentives including higher procurement prices of as much as 30%, Bloomberg reported in February.
Compounding Chinese exporters’ predicament, there are signs that other countries may follow America’s protectionist lead. South Korea and Vietnam said last month they would impose tariffs on Chinese steel, while Mexico has discussed similar measures with Washington.
Bessent last week urged Canada to follow Mexico’s potential move to help build what would be “Fortress North America.” If realized, that would deal a further blow to factories seeking to diversify.
“My biggest concern now is Europe would follow the US tariff policies,” said Andy Guo, who runs a trading company that helps Chinese manufacturers sell overseas. He raised prices for US buyers by a quarter a month ago and saw sales fall by more than 30%.
So far this year, Chinese exporters are still seeing growth, with the value of shipments to the US rising 2.3% in the first two months of the year, according to data released Friday in Beijing. Almost $76 billion worth of goods left China for the US in that period, the third-highest total on record, after the pandemic years of 2021 and 2022.
Intense Competition
The rising trade barriers will weigh on a Chinese economy already struggling with weak consumption and which relied on a record $3.6 trillion in global exports to meet its growth target last year.
Sluggish demand at home has dragged down export prices since May 2023, reducing the cost that foreign customers pay even before any discounts directly linked to tariffs.
An escalating tariff war would intensify cut-throat competition in China and add to deflationary pressures that risk trapping the country in a cycle of declining prices, corporate profits, salaries and spending power.
Wen Qian, who founded a Shenzhen-based e-commerce company selling electronics on Amazon and Temu, believes China’s manufacturing advantages will endure despite higher tariffs.
“What we care about the most is whether American consumers still need the products,” Wen said, citing profit margins as high as 70% for some goods. “The rapid innovation in products is hard for consumers to abandon.”
But she’ll have to fight for market share as companies like hers chase shrinking opportunities abroad, with her sales down to one-sixth of what they were in 2019. Wen’s employees work 10 a.m. to 10 p.m. daily, ordering takeouts so they could spend more time sourcing products — power banks, headsets and sports cameras — and marketing them.
“There are always ways to digest the rising costs,” she said. “I think they’ll still buy if products are good and prices are not insane.”
--With assistance from Jinshan Hong.
(Updates with January and February trade data.)
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