China’s factory heartland braces for Trump’s big tariff hit

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BEIJING: In ’s manufacturing heartland around the Pearl River Delta, Donald Trump’s 10% tariffs are causing little concern. The 25% duties that loom next year are another matter.

Ben Yang, a furniture maker producing contemporary designs out of his facility in Dongguan – about 30 miles from Hong Kong – says that if those higher charges materialise from as planned, the US share of exports from his Sunrise Furniture Co could plunge from 90% to less than a third.

“Our major rival is and 10% tariffs aren’t enough to make the difference,” said Yang, 48, who supplies retailers including Rooms To Go Inc. “But 25% tariffs are a worry. There will definitely be a short-term impact; Americans may have to accept higher prices.”

Yang’s situation mirrors that of the economy as a whole as it heads toward the close of 2018: The negative headlines that have dominated the year have not yet translated into a sharp contraction of output, but rather the gradual slowdown that had already been expected.



It’s what comes next that’s preoccupying business owners, as interviews with about a dozen manufacturers in the Delta over the past ten days showed. The region serves as both China’s traditional hub for manufacturing everything from toys to chemicals, as well as a higher-tech location that now hosts the headquarters of companies like Tencent Holdings Ltd. Exporters there are now seeking ways to adjust by diversifying sales to other overseas markets and domestic consumers.

“Going beyond 10%, the disruption increases exponentially,” says David Loevinger, a former China specialist at the US Treasury and now an analyst at fund manager TCW Group Inc in Los Angeles.

The government has effectively shelved its campaign to curb indebtedness and added limited stimulus measures, and the approach of tariffs has actually helped boost sales abroad as exporters rush to beat the higher charges.

The muted impact of Trump’s tariffs on China’s manufacturers so far is expected to be confirmed in third-quarter economic data scheduled for release Friday. The economy, in the throes of a policy-induced slowdown, is seen ticking down a notch with gross domestic product expanding 6.6% from a year earlier, according to the median estimate of economists in a Bloomberg survey.

That would be the slowest quarterly expansion in almost a decade. The economy expanded 6.7 percent in the second quarter, and is seen hitting 6.6 percent — just above the government’s target – for this full year before slowing more sharply in 2019.

Economists see retail flat from the previous month at 9% year-on-year, industrial production edging down to 6% from 6.1%, and fixed-asset investment for the first three quarters flat-lining at 5.3% over the same period a year earlier.

Trump imposed 10% tariffs on a further US$200bil of products last month, including on furniture, and said those could rise to 25% from January. He’d already imposed 25% tariffs on US$50bil worth of goods. China has retaliated and Trump’s threatened to levy duties on all China’s exports.

The US government opened another front in its campaign to change the economic relationship with China yesterday, announcing plans to withdraw from a postal treaty that the administration argues gives Chinese companies an unfair advantage over US firms. While the US might not leave the treaty if it can force a renegotiation, the action is likely to hurt Chinese companies by raising costs for shipping to the US via the postal service.



The domestic slowdown and that rising external pressure is prompting Guangdong manufacturers to gird for a more difficult 2019.

Domestic furniture supplier Baker Perfect in Dongguan is facing tougher competition, with exporters turning to the domestic market just as it feels “a chill wind” from the slowing economy, says founder Li Shuiqing. The furniture industry is delaying and refraining from new investment, he says.

“But it’s not a matter of survival, it’s just getting through a rough patch,” says Li, 37. “It’s about keeping money safe in bank deposits rather than investing in stocks or property. During difficult times you will be conservative, not expand or invest as much.”

There likely is worse to come. For the whole year, investment growth is seen slowing to 6.5% and to 6% in 2019, according to Bloomberg surveys. — Bloomberg





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