China can resist any new tariffs the world imposes on it – even the punitive ones Donald Trump plans if he wins a second term – because its prices are simply too competitive to resist.
That’s the prevailing view at this month’s Canton Fair. Many buyers and sellers at China’s biggest trade event in the southern city of Guangzhou were shrugging off the risk of an escalating trade war.
“My clients told me that even a 50 percent tariff wouldn’t deter them,” said Jack Jin, who sells cargo inspection tools and truck parts in southeast China. He says about half his orders come from Americans, who can sell his products for four times what he is paid.
Tensions between China and its trading partners are escalating in a US election year amid accusations that the world’s leading manufacturer is dumping goods and unfairly subsidizing industries. The list of target products is expanding, including metals and ships as well as electric vehicles.
Trump speaks it could impose a blanket tariff on China of more than 60%. President Joe Biden, his opponent in the November election, promised last week triple allegations about Chinese steel, an area where developing countries have also expressed concern. The EU has launched an investigation into Chinese subsidies for electric vehicles that could lead to new tariffs within months. careful study solar and railway industries.
But traders at the Canton Fair say the world will need Chinese goods no matter what. They come up with workarounds for tariffs. And even buyers who are considering alternative supply chain options said they still expect China to remain their main supplier as other countries lag behind on quality and cost.
“I’ll skin the cat”
Samuel Jackson, who attended the fair as a buyer for a Bosnian furniture company, said he could get products of a “very, very similar” standard for half the price charged by European manufacturers. Tariffs could have some impact, he said, “but China is too big a country. They have other countries to sell to.”
According to Alex Student, an importer of auto accessories in California, it is consumers in the United States who have borne the brunt of tariffs on Chinese-made goods. His home retailers refused to pay higher prices when Trump imposed the taxes and instead asked him to force manufacturers to supply a slightly cheaper version.
“In the end, who paid? Consumer,” he said. “You either gave up something in terms of product quality, or you paid more money for the same product.”
The student described one of the ways he found to compensate for tariffs: switching to the so-called Free On Board pricing. This meant that logistics and warehousing costs were left to its US customers, and the selling price on which tariffs are based dropped. “There are many different ways to skin a cat,” he said.
Chinese products are cheap even for buyers from less developed countries. Daniel Lulandala, owner of a hardware trading company in Tanzania, was on his first trip to China and was excited about the opportunity to negotiate directly with local manufacturers.
He found the prices offered at the Canton Fair so low that it prompted him to expand his business ambitions, and he is now considering opening a building block factory at home, using Chinese equipment costing about $8,000. He is confident that he can return this amount in just three months.
“If I was here a few years ago, I might be somewhere higher now in terms of business,” Lulandala said.
According to organizers, of the 125,000 foreign buyers who visited the fair until April 19, only 18% were from the United States and Europe. This is due not only to trade tensions, but also to the fact that connections with these economies are well established, and buyers tend to be more, albeit fewer. Two-thirds of the participants come mainly from developing countries participating in Beijing’s Belt and Road infrastructure plan, up from about half a century ago.
‘Emergency Plans’
Of course, the importers heading to Guangzhou are likely to be among the Chinese optimists, and some manufacturers there have expressed concerns about the trade war.
A saleswoman at a Shanghai plastic tape manufacturer, who asked not to be identified to discuss her concerns about the economy, said she was worried about the prospect of another Trump presidency. She said her company had struggled to make ends meet over the past few years, under pressure to continue developing more products even as profits fell, and described the business environment as akin to a rat race.
If falling production costs in China are impressive to foreign buyers, they are also a symptom of weak demand at home, where households are reluctant to spend after a long slump in the property market that has left the country at risk of deflation. A pivot to exports could help meet this year’s growth target of around 5%, but it also undermines the long-term plan for domestic consumers to play a larger role in driving the economy.
Gene, a truck parts salesman, admitted he is “a little” worried about Trump, whom he considers more unpredictable than Biden. He is also aware of growing competition from other developing countries. His company stopped making metal rings used on trucks because Indian manufacturers, unencumbered by tariffs, were able to offer lower prices.
The student said he began looking for what he calls “contingency plans.” His firm imported some goods from Vietnam last year, the first time they had been bought anywhere other than China since the 2000s, and he was eyeing Thailand and Indonesia for certain products.
But all these countries have a long way to go before they are competitive with China, he said. So even in a “worst-case scenario,” China would likely get about 75% of his firm’s business. “I can’t foresee it being any smaller.”