AP – When the first two rounds of 10 per cent tariffs hit, Zou Guoqing, a Chinese exporter, groaned but didn’t find the barriers insurmountable. He gave up some of his profits and offered his client, a snow-bike factory in Nebraska, price cuts ranging from 5 per cent to 10 per cent. It seemed to work: The factory agreed to a new order of molds and parts.
But when President Donald Trump announced an additional 34 per cent universal tariff on Chinese goods on April 2, Zou, who has been exporting to the United States for more than a decade, was incredulous.
Then came 50 per cent more from Trump, followed by another increase that pushed the universal tariff on Chinese goods to 145 per cent, and Zou said he now could only hope that Trump and Chinese leader Xi Jinping can communicate. “We are pausing the shipments,” he said, “until the leaders talk.”
That US tariff and the retaliatory 125 per cent tariff from China are putting businesses that trade between the US and China on edge. They are fretting not only about their next orders but also their viability if there is no quick relief. Experts are worried the decades-long trade ties that have underpinned the relationship between the world’s two largest economies could be unraveling.
Trade ties are tested
If the high tariff is sustained for the next six months or longer, “that would actually lead to a real effective decoupling between the American and Chinese economies,” said Chen Zhiwu, professor of finance at Hong Kong University Business School.
Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Centre, said the tariff, if kept in place, amounts to “almost a trade embargo,” making it impossible for China to export low-value items to the US. It also would force US. businesses to source elsewhere, away from China, if there should be alternatives, he said.
The Trump administration late Friday said it would exclude electronics such as smartphones and laptops from the reciprocal tariffs, which means they won’t be subject to the 145 per cent tariffs levied on China. The exemption seemed to reflect Trump’s realisation that his China tariffs are unlikely to shift more manufacturing of smartphones, computers and other gadgets to the US any time soon.
In China, the central tariff office declared there was “no possibility for market acceptance” of US goods exported to China at the current tariff level.
“Everyone’s pretty worried,” said Hu Jianlong, founder of Brands Factory, a consultancy that works with Chinese companies trying to break into overseas markets. “At this point in time, there’s no good way forward. This situation has not been resolved … there’s no final number. And so everyone’s still waiting to see how this will develop.”
Decouple or ‘de-risk’?
During his term, Democratic President Joe Biden stressed that the US was not trying to decouple from China but to “de-risk.” He took the “small-yard, high-fence” approach, under which his administration put up barriers in targeted sectors such as advanced chips, artificial intelligence and quantum computing that have national security implications.
Now, Trump is declaring universal tariffs on Chinese goods but has said he’s also willing to talk with Beijing. It remains unclear what the Republican president’s goals might be.
The message from China’s leadership is loud and clear. It will talk only when the U.S. stops “maximum pressure and capricious and destructive behavior,” said Lin Jian, a Chinese Foreign Ministry spokesperson.
Li Cheng, professor of political science at the University of Hong Kong, said the Chinese leadership is upset over being singled out by Trump when the US president paused reciprocal tariffs for 90 days for all other countries. Beijing wants to make sure that “Donald Trump does not state one thing in the morning and say other things in the evening,” Li said, and that Trump’s policies on China are not hijacked by his anti-China, hawkish advisers.
With no leadership-level negotiations in the immediate future, businesses are exploring their options.
Differing views, but optimism is sagging
In the eastern Chinese city of Wenzhou, a manufacturing hub, a holiday lights maker was less optimistic. Bo, who shared only his surname out of concern for retaliation, said he could “only give up” if the tariff hikes were here to stay because other markets might not work.
At a port in the Chinese city of Shanghai, ships heading to the US had almost vanished by Thursday, the day after Trump’s tariff on China took effect, according to a report by the financial news site Caixin. Major shipping lines were drastically cutting back on trans-Pacific routes, the report said.
For the longer term, the tariff war is likely to prompt Chinese businesses to diversify their supply chains and move part of their manufacturing capacity outside of China, and even to the United States, said Hu, the consultant.
Some might follow in the footsteps of the Tianjin steelmaking business, which gave up trading with the US after both Trump and Biden raised tariffs on Chinese steel.
However, not everyone is ready to give up on the US market. Zou, the exporter in Ningbo, describes the US market as “reliable and without finicky demands.
