Chinese exporters are growing increasingly anxious as former US president Donald Trump considers implementing a 60% tariff on all Chinese goods if re-elected.
With the US being China’s top trading partner, importing over $400 billion in goods annually, the proposed tariffs would hit numerous sectors and could impact the global economy.
Many Chinese manufacturers rely heavily on the US market, including Hebei Yiyue Glass Products, where 80% of its glassware exports head to the United States.
Amid fears of a steep economic downturn, Chinese firms are scrambling to find alternative markets.
Li Wei, who manages a glass factory in northern China, is actively seeking export destinations to offset potential losses.
However, diversifying away from the US market has proven challenging, given its sheer size and purchasing power.
Tariffs threaten to cut 2.5% off China’s GDP growth
UBS economists warn that Trump’s proposed tariffs could reduce China’s GDP growth by 2.5 percentage points over the next year.
This would come at a time when China’s economic growth is already under pressure from a sluggish property sector, declining consumer spending, and low levels of household confidence.
China’s government has targeted around 5% growth for the year, but with new tariffs, achieving this goal could become increasingly difficult.
Beyond GDP, the impact of a trade war on Chinese businesses would be immediate and severe.
Gary Ng, senior economist at Natixis, notes that for some manufacturers, profitability in the US market could vanish under 60% tariffs, with repercussions likely to ripple across China’s broader economy.
Major exporters, such as electronics maker Sotech in Shanghai, fear they may lose their US clients altogether, leading to potential layoffs and revenue losses.
Exporters look to new markets but find limited alternatives
As US-China trade tensions escalate, Beijing is pivoting to new trade relationships.
In recent years, China has strengthened its economic ties with African and South American nations.
In September, China hosted representatives from 50 African nations for the Forum on China-Africa Cooperation, aiming to bolster African demand for Chinese exports such as solar panels and electric vehicles.
Similarly, South American countries are increasingly sourcing Chinese products as bilateral ties grow.
Nevertheless, replacing the massive demand of the US market remains a daunting task for most Chinese firms.
Exporters worry that while new markets provide opportunities, they cannot match the volume or profitability of the US market.
A recent surge in tariffs by the European Union and Canada on Chinese electric vehicles further complicates efforts to shift export destinations.
US inflation and GDP to face consequences from tariff increase
The Peterson Institute for International Economics (PIIE) predicts that US inflation could rise by 0.4% by 2025 if Trump’s tariffs go into effect, potentially hurting American consumers and businesses alike.
A GDP loss of 0.23% is also expected by 2027, particularly if China retaliates with its own trade measures.
Rising costs on imported goods could dampen consumer spending and squeeze profit margins, making the proposed tariffs a double-edged sword for the US economy.
Chinese exporters consider production shifts to bypass US tariffs
To mitigate risks, some Chinese manufacturers are exploring ways to indirectly access the US market.
Companies like Hebei Cangzhou New Century International Trade are exploring partnerships with manufacturers in Indonesia, allowing them to route products through intermediary countries before shipping to the US.
While this approach may provide temporary relief, it also adds complexity and costs, which smaller firms may struggle to absorb.
Along with seeking alternative routes, Chinese authorities are reinforcing domestic support for affected sectors.
Beijing has launched anti-dumping investigations on select Western imports and imposed export controls on key semiconductor materials, signalling its intent to respond to rising global trade barriers.
Nonetheless, with tariffs being adopted by multiple Western nations, this approach offers limited relief to many exporters.
Trade war escalation signals long-term challenges for global trade
As Trump’s proposed tariffs loom, businesses on both sides of the Pacific brace for heightened trade tensions.
Should tariffs rise as proposed, a significant shift in the global economic landscape could follow, with China doubling down on efforts to reduce its dependence on the US market.
As seen with previous trade wars, finding effective substitutes for the vast American market is not easy.
For exporters like Li Wei, the tariffs pose a personal and professional challenge.
The possible loss of access to the US market has cast uncertainty over his glass-making business, which has doubled its workforce and production since he took the reins in 2020.
If the tariffs materialise, he faces the tough choice of downsizing or seeking costlier alternatives, a predicament shared by many in China’s export-driven economy.
As policymakers, economists, and businesses anticipate the election outcome, the stakes remain high.
For both the US and China, the consequences of a renewed trade war could prove costly and reshape the dynamics of global trade well into the future.
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