China can resist any new tariffs the world imposes — even the punitive tariffs Donald Trump plans if he wins a second presidential term — because prices are simply too competitive to withstand.
That’s the prevailing opinion at this month’s Canton Fair. Many buyers and sellers at China’s biggest trade event, held in the southern city of Guangzhou, shrugged off the risk of an escalating trade war.
“My customers told me that even a 50% tariff won’t drive them away,” said Jack Jin, who sells freight monitoring tools and truck parts from southeast China. He says about half of his orders come from Americans, who can sell his products for four times what they pay him.
Tension between China and its trading partners is escalating in an election year in the US, amid accusations that the world’s largest manufacturer is dumping goods and unfairly subsidizing industries. The list of targeted products is growing, including metals and ships, as well as electric vehicles.
Trump says he may impose an across-the-board China tariff of more than 60%. President Joe Biden – his opponent in the November election – pledged last week to triple charges against Chinese steel, an area where emerging economies have also expressed concerns. The EU has launched an investigation into Chinese EV subsidies that could lead to new tariffs within months, and is keeping a close eye on the solar and rail industries.
But traders at the Canton Fair say the world will need Chinese goods anyway. They come up with solutions for the rates. And even buyers exploring supply chain alternatives said they still expect China to remain their top source as other countries lag behind in quality and cost.
‘Skin the cat’
Samuel Jackson, who was at the fair as a buyer for a Bosnian furniture company, said he can get products of “very, very similar” standard at half the price charged by European makers. Tariffs might have some impact, he said, “but China is too big a country. They have other countries to sell to.”
According to Alex Student, a California-based auto accessories importer, it is American consumers who are bearing the brunt of tariffs on goods made in China. His retailers at home refused to pay higher prices when Trump raised taxes, and instead asked him to get manufacturers to supply a slightly cheaper version.
“Who ultimately paid? The consumer,” he says. “You’ve either given up something in terms of product quality, or you’ve given up more money for the same product.”
Student described one way he could offset the fares by switching to so-called Free On Board pricing. That meant logistics and storage costs were left to its U.S. customers — and the retail price, on which the rates are based, fell. There are “many different ways to skin the cat,” he said.
Chinese products are cheap, even for buyers from less developed countries. Daniel Lulandala, owner of a machinery 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 at the Canton Fair so low that it led him to expand his business ambitions, and he is now thinking of opening a factory at home to make building blocks, using a Chinese machine that costs about $8,000 . He is confident he can earn that back in just three months.
“If I had been here a few years earlier, I could be somewhere higher now, business-wise,” Lulandala said.
Of the 125,000 foreign buyers who visited the fair through April 19, only 18% came from the US and Europe, according to organizers. This is not only due to trade tensions, but also because ties with those economies are well established and the buyers are often larger or smaller in number. Two-thirds of visitors come from the mainly emerging countries that are part of the Beijing Belt and Road infrastructure plan, an increase from about half a decade ago.
‘Contingency plans’
Of course, importers who made the trek to Guangzhou are likely among the Chinese optimists – and some manufacturers there expressed concerns about the trade war.
A saleswoman for a Shanghai plastic strapping maker, who asked not to be identified discussing her concerns about the economy, said she was worried about the prospect of another Trump presidency. She said her company has done well in recent years, under pressure to keep developing more products even as profits fell, describing business conditions as a rat race.
If China’s falling production costs impress foreign buyers, they are also a symptom of weak domestic demand, where households are reluctant to spend after a prolonged slump in the real estate sector, putting the country at risk of deflation. A shift to exports could help meet this year’s growth target of around 5%, but also undermines the long-term plan for domestic consumers to play a bigger role in driving the economy.
Jin, the truck parts salesman, acknowledged he was “a little” concerned about Trump, whom he sees as more unpredictable than Biden. He is also aware of growing competition from other emerging countries. His company stopped making a metal ring used on trucks because Indian manufacturers, without the burden of tariffs, could offer lower prices.
Student said he was looking for what he calls “contingency plans.” His company imported some goods from Vietnam last year, the first time it has sourced from anywhere other than China since the 2000s, and has looked to Thailand and Indonesia for some products.
But all these countries still have a long way to go before they are competitive with China, he said. So even in the “worst case scenario,” China will likely still capture about 75% of its business revenue. “I can’t foresee it getting any less.”