President Donald Trump claims China is paying his tariffs; furniture salesman Mack Yuan in the east-coast commercial heartland of Zhejiang begs to differ.
“We don’t pay any tariffs,” says Yuan, whose company Dakang Holdings Co. sells about half its products to the U.S., including to Walmart Inc. and Costco Wholesale Corp.
His confidence is based on the novel designs of the company’s gaming and office chairs — products that U.S. buyers can’t easily replace. U.S. sales are unaffected and Walmart has raised the price of their products almost 10%, says Yuan. A spokesperson for Walmart declined to comment on specific cases.
The impact of Trump’s tariff hike on $200 billion of Chinese imports to 25% from 10% from May 10 is beginning to ripple through supply chains. Evidence from Chinese companies suggests it will pack a punch against lower-end products while leaving many companies a little further up the value chain largely unscathed.
What is already looking more certain is that the rising costs will be felt across the global economy. Prices will rise for American consumers in some cases, hurt Chinese and American corporate profits in others, and drag down growth of nations caught in the crossfire should the global expansion decelerate.
“China probably loses most on paper because it has a big trade surplus with the U.S.,” said Tao Dong, vice chairman for Greater China at Credit Suisse Private Banking in Hong Kong. “The U.S. consumer needs to pay as well. Most other countries run surpluses against China, so if the Chinese economy slows down many others will as well.”
China added to the overall burden Saturday when it raised retaliatory tariffs on $60 billion of American goods. As some Chinese companies grapple with Trump’s latest tariff hike, others are bracing for threatened 25% tariffs on another $300 billion worth of Chinese goods, including children’s clothing, toys, cell phones and laptops.
That would mean practically all of China’s exports to the U.S. would be drawn into the trade war. Bloomberg Economics estimates a full-blown tariff conflict could cut about $600 billion off global growth by 2021.
Foshan Dongfang Medical Equipment Manufactory Ltd., a maker of wheelchairs in the southern province of Guangdong, fears higher tariffs will put it in a dogfight with Taiwanese competitors that had priced products as much as 20% higher before the latest tariff hike, says sales director Amy Zhou.
“Clients are becoming cautious everywhere,” she said. “Last year was difficult enough, but this year is worse.”
The hair dryers and curling irons made by Taizhou Jinba Health Technology Co. in Zhejiang are on the $300 billion list, but staff there remain unfazed. American companies or consumers will have to pay any additional tariffs because they can’t source products from elsewhere, said a company employee named Tao, who declined to give his full name or position in a telephone interview.
“Southeast Asian nations don’t have the supply chain, and they even can’t make components,” said Tao, whose company sells half its products to the U.S. “For hairdryers, where can they buy these products? If from Europe, that is going to be even more expensive. American importers will have to pay for the additional tariffs if it happens, and then the retail prices will inevitably go up.”
An International Monetary Fund blog in May co-authored by chief economist Gita Gopinath concluded that “consumers in the U.S. and China are unequivocally the losers from trade tensions.” A National Bureau of Economic Research working paper co-authored by the Federal Reserve Bank of New York’s Mary Amiti found “complete passthrough of the tariffs into domestic prices of imported goods.”
Impacts may change with higher tariffs on a broader range of goods. The big risk for China is longer-term damage to its role as the world’s preeminent production hub, said Yao Wei, chief China economist at Societe Generale SA in Paris. Multinational and Chinese companies are more actively seeking alternative production bases and this may accelerate at the same time as foreign direct investment falls, risking long-lasting damage to China’s productivity, she says.
While some non-Chinese companies will pick up new business as buyers source from alternative markets, the overall macro spillovers from the trade war are bad news for just about everyone.
“There will be significant trade destruction and trade disruption for most countries,” said Chua Hak Bin, a senior economist at Maybank Kim Eng Research Pte. in Singapore. “Many countries, especially more open export-oriented economies including Singapore, will risk slipping into a recession.”