Chinese manufacturers are feeling a wave of renewed optimism after the United States’ recent decision to suspend tariffs targeting Chinese goods. This decision has sparked a wave of investment and expansion by businesses that were previously hampered by the trade war. David Xu, the owner of a jigsaw puzzle factory in Dongguan, Guangdong province, was able to immediately get back into production on a very large $500,000 order placed just prior to the announcement of closure. Michelle, whose small business focuses on climate-friendly knitted garments, is preparing to ship 300,000 sweaters to the US. She’s trying to get her business up and running in the next 90 days.
Many Chinese businesses are grateful for the temporary suspension of duties. They are reeling from the impacts of the US-China trade war over the last few years. The Trump administration’s first tariff roll-outs were a doozy. Consequently, by the beginning of 2023 numerous firms found themselves facing a dramatic nosedive in new orders from US customers. Xu pointed out that for his factory, US sales account for almost 70% of his factory’s revenue. At first, it announced plans to cut in half its workforce due to the economic pressure resulting from tariffs.
A Breath of Fresh Air for Manufacturers
And the recent tariff pause has certainly flickered a light of hope under factory owners. David Xu’s factory was particularly affected when an order for 100,000 puzzles from an American client was suspended during peak tensions. After a significant delay caused by production getting back on track, now he is looking to have the puzzles shipped down to the US within 90 days.
“I was so happy to hear the news; we rushed to get in touch with the foreign partners on Monday night. A big weight is off my mind,” – Yu Jianfen
This sentiment is echoed across various sectors. Even though Michelle has gotten some orders since the pause ended, she still feels like her business is not in a sustainable place. She began to feel concerned that the orders didn’t add up to support her business. This worry drove her to announce the closure of her factory and the layoff of 200 workers.
Alfred Wu, a noted China analyst, pointed out one big positive trend. A number of companies are already taking the initiative and moving their operations to Southeast Asian nations to protect themselves long-term with the continued uncertainty of trade. “This is going to be the norm going forward,” he said.
Navigating Uncertainty
As those factories begin to open again, there remains much uncertainty about whether they might face new tariffs in the future. David Xu, whose hometown is Shanghai, discussed with us the often antagonistic dynamic between China and the US. He compared it to a dense novel with a lot of good and bad stories.
“The relationship between China and the US is just like a thick book. There may be a few good pages and a few bad pages, but you can hardly tear the book apart,” – Mr. Xu
He underscored the importance of working closely with American companies. Most Chinese manufacturers are very interested in maintaining good relationships with their partners. That’s why, earnestly, we want to work together with the US,” he noted.
Yet, there is still a palpable fear about what will happen with new policies on trade. Xu began looking at opening a factory in Thailand. This move was an anticipatory precaution against possible future disruptions. It’s our last choice, in the challenge of the political instability, a lot of people in our business are voting with their feet,” he said.
Future Prospects and Challenges
All the obstacles in their way have yet to dim some entrepreneurs’ optimism about what awaits in the future US-China trade relationship. Henry Zhou, an e-commerce entrepreneur, noticed that lots of companies have stopped shipping. They’re concerned that increasing one-time costs due to tariffs will deter would-be customers. He wasn’t joking when he shared his alarm. Most everyone has quit even shipping because they lose buyers unwilling to pay the higher costs through increased selling price. It’s just too costly a proposition.
None of this seems to dissuade Zhou from a belief that something better is in store for the two countries. As you might expect, this is the prevailing viewpoint among industry insiders. They know that tariffs can pose immediate obstacles, but they present opportunities for engagement and fix the underlying problems.
These manufacturers are the definition of a measured optimism. They are damn good at playing the long game on the inscrutable chess board of international trade.
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