(Oct 31): Chinese exporters are heartened by lower US tariffs following a summit between leaders of the two economic superpowers Thursday, but say they’re still keen to hedge exposure to any future setbacks in bilateral trade ties.
For buyers and sellers alike of consumer goods in the US, the risks of relying solely on China for production for everything from fast fashion to holiday ornaments have begun to outweigh the country’s edge as a low-cost production hub. Even with the trade truce, US retailers aren’t likely to reconsider plans to move supply chains out of China and Chinese manufacturers are committed to expanding exports to markets beyond the US to limit their vulnerability.
“The tariff cut buys us more time,” said Huang Lun, sales manager at a Guangzhou-based retailer that sells underwear and yoga pants through online retailers including Amazon.com Inc, Shein Group Ltd and PDD Holdings Inc’s Temu.
While American buyers made up 80% of his company’s total annual sales last year, Huang’s firm initially sought to lower that dependence on the US to just 20% with growth in other markets. An unexpected surge of sales before tariffs kicked in upended that goal this year, but shifting away from the US is “the only way to reduce trade risks for the long term,” he said.
Chinese President Xi Jinping and US President Donald Trump announced the trade détente after their highly anticipated meeting in South Korea. If the 20% fentanyl tariff is halved, as Trump announced after the meeting, then the average rate on Chinese goods will fall to 31% according to Bloomberg Economics. That’s well below the 50% US tariffs on many products from Brazil and India — making production in China more attractive than either, at least for now, especially after taking into account its mature manufacturing ecosystem and vast pool of trained workers.
Several Chinese exporters Bloomberg News spoke with were optimistic that the improved trade relations will result in an uptick in order flow between the world’s largest economies, bolstering profitability for businesses that have been squeezed by US tariffs of more than 50% in recent months on imports from China.
See also: US Senate snubs Trump on trade in third anti-tariff vote this week
“We are going to get better deals with US clients,” said Andre Huang, a sales manager working for a firm selling household cleaning products like mops from Ningbo, an export base in eastern China.
The company’s expansion in the US has been stalled by the high tariffs imposed earlier in the year, but Huang noted things have started to brighten up lately, amid growing expectations for a breakthrough at the Trump-Xi summit. He said more American clients showed up for a trade fair currently being held in Guangzhou, than did for a similar event just a few months ago.
Lessons learned
See also: Xi calls for stable supply chains after sealing Trump truce
Yet the prospect of more business in the US no longer excites Chinese exporters as it once did. Many said they’ve learned their lessons from Trump’s trade brinkmanship and now realize that they can’t rely solely on access to the world’s biggest consumer market.
The push into markets beyond the US already is evident in China’s trade data. The country is on track for a record US$1.2 trillion (RM5.02 trillion) trade surplus this year, as shipments to Europe, Africa and other parts of Asia offset a slump in exports to the US.
At the same time, many buyers in the US have begun to rethink their dependence on a China-based sourcing strategy. They’re asking suppliers to set up manufacturing operations outside of China, even if it means higher costs and lower efficiencies in the near term.
For Lin Qian, who runs factories making toys in both the southern China boomtown of Shenzhen and in Vietnam, the lower US levies mean his Chinese factories will continue to handle the bulk of orders from US clients in the near term. But longer-term, he sees a shift away from China to steer clear of further disruption.
“Both us and our clients are clear [that] the diversification pace won’t change, as the China-US relationship is still tricky,” he said.
Establishing a production facility in nearby Vietnam is non-negotiable for a company that counts US toy brands for three-quarters of its revenue. Those clients, who Lin wouldn’t specify, threatened to stop placing orders altogether earlier this year, unless he moved more production to the Southeast Asian country.
Production at Lin’s toymaking factory in Vietnam finally kicked off in September, three months later than expected. “Challenges are obvious.” he said, adding “we really have to leave our comfort zone.”
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Having factories both at home and abroad has provided more of a sense of security for many China-based exporters.
“We’re no longer afraid of ups and downs in tariff rates,” said Barry Shan, whose company currently makes holiday ornaments for Walmart Inc at its factory in eastern Chinese province Zhejiang. He will soon do the same at a new plant in Cambodia.
Even Chinese exporters who still want to maintain the US as their primary market, diversifying production outside of China, is viewed as essential to staying competitive.
“Everybody is diversifying,” said Shanghai-based freight forwarder Keven Chen. “It’s now an industry consensus that US market can’t just rely on China’s supply chain, while Chinese manufacturers can’t merely count on the US market.”
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