Manufacturing Extension Partnerships Face Uncertain Future As Trump Pulls Funding

Manufacturing Net

As Tariffs Put China-U.S. Trade In Peril, Chinese Businesses Ponder The FutureWhen the first two rounds of 10% tariffs hit, Zou Guoqing, a Chinese exporter, groaned but didn't find the barriers insurmountable. He gave up some of his profits and offered his client, a snow-bike factory in Nebraska, price cuts ranging from 5% to 10%. It seemed to work: The factory agreed to a new order of molds and parts. But when President Donald Trump announced an additional 34% universal tariff on Chinese goods on April 2, Zou, who has been exporting to the United States for more than a decade, was incredulous. "There's not a thread of feasibility," said Zou, who does business in the eastern Chinese city of Ningbo. "It looks like I would have no choice but give up trading with the U.S." Then came 50% more from Trump, followed by another increase that pushed the universal tariff on Chinese goods to 145%, and Zou said he now could only hope that Trump and Chinese leader Xi Jinping can communicate. "We are pausing the shipments," he said, "until the leaders talk." That U.S. tariff and the retaliatory 125% tariff from China are putting businesses that trade between the U.S. and China on edge. They are fretting not only about their next orders but also their viability if there is no quick relief. Experts are worried the decades-long trade ties that have underpinned the relationship between the world's two largest economies could be unraveling. If the high tariff is sustained for the next six months or longer, "that would actually lead to a real effective decoupling between the American and Chinese economies," said Chen Zhiwu, professor of finance at Hong Kong University Business School. Josh Lipsky, senior director of the Atlantic Council's GeoEconomics Center, said the tariff, if kept in place, amounts to "almost a trade embargo," making it impossible for China to export low-value items such as apparel to the U.S. It also would force U.S. businesses to source elsewhere, away from China, if there should be alternatives, he said. The Trump administration late Friday said it would exclude electronics such as smartphones and laptops from the reciprocal tariffs, which means they won't be subject to the 145% tariffs levied on China. The exemption seemed to reflect Trump's realization that his China tariffs are unlikely to shift more manufacturing of smartphones, computers and other gadgets to the U.S. any time soon. In China, the central tariff office declared there was "no possibility for market acceptance" of U.S. goods exported to China at the current tariff level. "Everyone's pretty worried," said Hu Jianlong, founder of Brands Factory, a consultancy that works with Chinese companies trying to break into overseas markets. "At this point in time, there's no good way forward. This situation has not resolved ... there's no final number. And so everyone's still waiting to see how this will develop." The tariff war has come more than 20 years after China, with the help of the United States, joined the World Trade Organization and began to see its economy soar on luring foreign investments and exporting to the U.S. and other Western markets. By last year, China-U.S. trade was $582 billion, but tensions have flared over China's widening trade imbalance with the U.S. That led to the first tariff skirmish during the first Trump term. The trade deficit has since narrowed but stayed stubbornly high, at a time when the U.S. and other Western markets have also grown concerned about another onslaught of Chinese products such as electric vehicles. During his term, Democratic President Joe Biden stressed that the U.S. was not trying to decouple from China but to "de-risk." He took the "small-yard, high-fence" approach, under which his administration put up barriers in targeted sectors such as advanced chips, artificial intelligence and quantum computing that have national security implications. Now, Trump is declaring universal tariffs on Chinese goods but has said he's also willing to talk with Beijing. It remains unclear what the Republican president's goals might be. "What are they looking for in those negotiations? How much is it possible to reduce these tariffs? What are the other demands apart from China removing its retaliatory tariffs that the United States wants to put forward. We don't know what that would be," said Greta Peisch, who served as the general counsel for the Office of the U.S. Trade Representative in 2021-2024. The message from China's leadership is loud and clear. It will talk only when the U.S. stops "maximum pressure and capricious and destructive behavior," said Lin Jian, a Chinese Foreign Ministry spokesperson. Li Cheng, professor of political science at the University of Hong Kong, said the Chinese leadership is upset over being singled out by Trump when the U.S. president paused reciprocal tariffs for 90 days for all other countries. Beijing wants to make sure that "Donald Trump not state one thing in the morning and say other things in the evening," Li said, and that Trump's policies on China are not hijacked by his anti-China, hawkish advisers. With no leadership-level negotiations in the immediate future, businesses are exploring their options. Lisa Li, who works in sales for an athletic wear manufacturer in the northern Chinese province of Hebei, said her business was negotiating with clients over whether they could split the increased costs. It's too early to say if her company is to give up on the U.S. market, she said, but it will "definitely expand other avenues for sales," such as in Australia or Europe. In the eastern Chinese city of Wenzhou, a manufacturing hub, a holiday lights maker was less optimistic. Bo, who shared only his surname out of concern for retaliation, said he could "only give up" if the tariff hikes were here to stay because other markets might not work. "In the past few years, the European market has been in a slump," Bo said. "So we had wanted to try and develop our business in the United States." In Hong Kong, Danny Lau, who runs an aluminum-coating factory in the nearby southern Chinese city of Dongguan, said one of his U.S clients would keep buying from him for an ongoing project but was unsure about the next project. Another client told Lau that the chances are slim to strike a deal when tariffs are so high. Lau has been exploring other markets, but he says it's not easy because some may find his high-quality products too expensive. At a port in the Chinese city of Shanghai, ships heading to the U.S. had almost vanished by Thursday, the day after Trump's tariff on China took effect, according to a report by the financial news site Caixin. Major shipping lines were drastically cutting back on trans-Pacific routes, the report said. For the longer term, the tariff war is likely to prompt Chinese businesses to diversify their supply chains and move part of their manufacturing capacity outside of China, and even to the United States, said Hu, the consultant. Some might follow in the footsteps of the Tianjin steelmaking business, which gave up trading with the U.S. after both Trump and Biden raised tariffs on Chinese steel. "The best plan is to not come into contact," said David Yu, who works in the company's foreign sales department. However, not everyone is ready to give up on the U.S. market. Zou, the exporter in Ningbo, describes the U.S. market as "reliable and without finicky demands." "It's the best market on Earth," he said. "I am waiting for the rainbow after the storm."

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16 April 2025

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Manufacturing Extension Partnerships Face Uncertain Future As Trump Pulls Funding

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