Trump's tariffs hit China hard before - this time, it's ready

A hiss and puff of compressed air molds the smooth leather, bringing an all-American cowboy boot to life in a factory on China’s eastern coast.

The assembly line hums with the sounds of sewing, stitching, cutting, and soldering as production continues.

"We used to sell around a million pairs of boots a year," says 45-year-old sales manager Mr. Peng, who prefers not to share his full name.

That is, until Donald Trump came into office.

A wave of tariffs during his first term sparked a trade war between the world’s two largest economies. Now, six years later, Chinese businesses are preparing for a possible sequel, with Trump returning to the White House.

"What direction should we take moving forward?" Mr. Peng wonders, uncertain about the implications of a Trump 2.0 presidency for him, his colleagues, and China.

Trump's tariffs severely impacted China during his first term, and now, as he returns to the White House, China is preparing for the next round. In factories like the one in Jiangsu, the uncertainty looms. A sales manager, Mr. Peng, recalls a time when the company produced over a million pairs of boots annually, but the trade war led by Trump's tariffs shifted their future. As a result, Chinese businesses are facing tough decisions, and many have started relocating production to Southeast Asia to avoid the tariffs, though the move means losing their local workforce. The looming 10% tariff on Chinese goods, set to take effect on February 1, is intensifying these challenges. Meanwhile, major global companies like Nike and Adidas have already moved their operations out of China, further reshaping the global supply chain. Trump's return to power brings the possibility of renewed trade tensions, leaving businesses on edge about the future.

He understands the geopolitics at play, but he and his workers are simply focused on making a living. They are still recovering from the impact of 2019, when the fourth round of Trump tariffs - a 15% tax - hit Chinese-made consumer goods like clothing and footwear.

Since then, orders have slowed, and the workforce, once over 500, has dwindled to just over 200. The evidence is visible in the empty workstations as Mr. Peng walks us through the factory.

Workers are busy cutting leather into precise shapes for the machinists, aware that any mistakes could ruin the costly leather, most of which is imported from the US.

The factory is doing its best to keep costs low, as some American buyers are contemplating moving business away from China due to the ongoing threat of tariffs.

However, that could mean losing skilled workers. Crafting a single pair of boots takes up to a week, from flattening the leather to the final polish and packaging.

This labor-intensive process, which is cheap when scaled up with a robust supply chain, is what helped China become the world’s manufacturing powerhouse. It’s a system that has been decades in the making.

Mr. Peng, who has worked here since 2015, reflects, “It used to be a continuous cycle of inspecting and shipping goods – it was fulfilling. But with fewer orders, I feel lost and anxious.”

For over a decade, these cowboy boots have been made here, a story that echoes throughout southern Jiangsu province, a manufacturing hub along the Yangtze River, producing everything from textiles to electric vehicles.

Each year, China ships hundreds of billions of dollars worth of goods to the United States, a trade relationship that grew significantly as Washington became its top trading partner. However, under former President Trump, this status began to slip, and under President Joe Biden, the situation has not improved. Biden largely maintained the tariffs imposed during Trump’s administration, as tensions between the U.S. and Beijing continued to rise.

The European Union has also imposed tariffs on Chinese electric vehicle imports, accusing China of overproduction, often backed by state subsidies. Trump has supported these claims, arguing that China’s “unfair” trade practices harm foreign competitors.

Beijing views such criticism as an attempt by the West to hinder its growth and has warned that a trade war would have no winners. However, China has expressed willingness to negotiate and “properly handle differences.”

Trump, who has called tariffs his "one big power" over China, is eager to talk. It remains unclear what he might seek in return. During his first term, Trump visited Beijing to ask for Xi’s help with North Korea. This time, he might look to Xi for support in striking a deal with Russian President Vladimir Putin to end the war in Ukraine, given China’s significant influence on the situation.

The potential 10% tariff stems from the belief that China is facilitating the flow of fentanyl to Mexico and Canada, leading Trump to possibly demand more action on this front. Additionally, Trump, who stirred up a bidding war over TikTok, may seek to negotiate the app’s ownership or access to the technology behind it, with Beijing needing to approve any sale.

Any potential deal could serve as a catalyst for resetting US-China relations. However, without one, the opportunity for a second "honeymoon" could quickly vanish, leading to a more confrontational dynamic between Trump and Xi.

Business sentiment is already uneasy. An annual survey by the American Chamber of Commerce in China revealed that just over half of its members are concerned about further deterioration in US-China relations.

While Trump's seemingly softer stance on China has provided some relief, his main strategy remains using the threat of tariffs to push businesses away from China and back to the US.

However, some Chinese companies are indeed relocating—but not to the United States.

Trump's Tariffs Hit China Hard – But This Time, China is Ready

Donald Trump’s trade war with China during his first presidential term had a major impact on Chinese businesses, but now, with Trump back in the White House, these companies are bracing for another round. Trump has threatened a 10% tariff on Chinese goods set to begin on February 1, 2025, and has ordered a review of US-China trade relations, giving both sides room for negotiation. Although the most aggressive rhetoric may be focused on allies like Canada and Mexico, many believe the trade battle with China will soon heat up again.

Mr. Peng, a sales manager at a factory in Jiangsu, Eastern China, illustrates the toll the previous tariffs have taken. His company, which once sold a million pairs of cowboy boots annually, has seen its workforce cut by more than half as orders have declined due to the tariffs. The factory, which imports leather from the US, now faces not only lower demand but also the possibility of moving production to Southeast Asia to mitigate the effects of the tariffs. However, this could mean losing skilled workers who have been with the company for decades. Despite these challenges, Mr. Peng and his team are determined to keep the factory running, even as uncertainty about the future looms.

The broader landscape shows that companies like Nike, Adidas, and Puma have already relocated production to Vietnam to avoid tariffs. Chinese businesses are also adjusting by shifting their supply chains, though China remains a key player in global manufacturing. The US’s tariffs, especially the 15% tariff imposed in 2019 on Chinese consumer goods like clothing and shoes, have had a long-lasting impact on China’s economy.

Despite these pressures, Chinese manufacturers continue to adapt. Mr. Peng, who has worked at the factory since 2015, reflects on how the trade war has left him and his colleagues feeling anxious and uncertain about the future. Once an unstoppable force in global manufacturing due to its labor-intensive production, China’s dominance is now being challenged by shifting supply chains and evolving trade policies.

Under Trump, the US sought to curb China’s economic influence, but his successor, President Joe Biden, has largely kept the tariffs in place, with tensions between the two nations continuing to escalate. Meanwhile, the European Union has imposed tariffs on Chinese electric vehicles, accusing China of unfair trade practices supported by state subsidies.

Trump’s return to power brings new uncertainty. He’s indicated that he may use tariffs to pressure China into making concessions, potentially over issues like the flow of fentanyl or the ownership of the TikTok app. If a deal is reached, it could lead to a reset in US-China relations. If not, the trade war may intensify, further exacerbating the strains between the two countries.

As businesses in China and beyond adjust to the shifting landscape, some, like businessman Huang Zhaodong in Cambodia, are setting up new factories to cater to Western markets, with orders from major retailers like Walmart and Costco flooding in. While some Chinese companies are moving production out of China to avoid tariffs, few are relocating to the US. Instead, they are looking to places like Southeast Asia where costs are lower, and tariffs are less of a threat.

The future of US-China trade remains uncertain, but one thing is clear: the global manufacturing landscape is shifting, and companies are trying to adapt to the new reality shaped by tariffs and geopolitical tensions.

When prospective US customers ask Mr. Huang the familiar question about his location, he now has a clear answer: not in China.

"In some cases, Chinese companies have been told by their customers, 'If you don’t move production overseas, we’ll cancel our orders,'" he says.

The tariffs create difficult choices for suppliers and retailers, but it's often unclear who will bear the financial burden. According to Mr. Huang, sometimes it's the customer who pays the price.

"Take Walmart, for example. I sell them clothes for $5, and they typically mark up the price by 3.5 times. If tariffs push my costs up to $6, the retail price could rise accordingly," he explains.

However, more often than not, it's the supplier who takes the hit. If his production was in China, an additional 10% tariff could cost him an extra $800,000 (£644,000) — more than his profit margin. "It's a massive amount we can’t absorb. Manufacturing in China under these tariff conditions is simply not sustainable," he says.

US tariffs on Chinese goods range from 100% on electric vehicles to 25% on steel and aluminum. Until now, certain high-demand items, such as electronics like TVs and iPhones, have been exempt from these tariffs.

But President Trump’s proposed 10% blanket tariff could impact nearly all products made in China and exported to the US, affecting everything from toys and tea cups to laptops.

Trump's Tariffs: A New Era of Trade Tensions with China

Laura Bicker, China Correspondent - February 1, 2025

As Donald Trump resumes his presidency, businesses in China are bracing for the return of the tariffs that marked his first term. During his initial presidency, tariffs on Chinese goods led to a full-fledged trade war between the U.S. and China, severely affecting many businesses in China. Now, with the possibility of a 10% tariff coming into effect on February 1, companies like the one producing cowboy boots in Jiangsu province are facing uncertainty once again.

At a factory in Jiangsu, the sound of machinery working overtime to produce leather cowboy boots once bound for the U.S. fills the air. Sales manager Mr. Peng recalls that the factory used to sell around a million pairs of boots annually, but the impact of tariffs during Trump's first term has since caused a significant drop in orders. Staff numbers have fallen from over 500 to just 200, and workers fear that further tariffs could lead to the factory relocating, as many of their competitors have already moved production to Southeast Asia.

With the looming possibility of new tariffs, many Chinese businesses are already feeling the pressure. Major companies like Nike, Adidas, and Puma have already shifted production to countries like Vietnam, and Chinese manufacturers are considering similar moves to protect their businesses. Mr. Peng's factory is caught between two options: moving production to Southeast Asia to save costs, or maintaining operations in China and risking further job losses and economic strain.

Tariffs, which were imposed by Trump as part of his tough stance against China’s trade practices, have significantly affected the Chinese economy, especially in industries like clothing and electronics. The U.S. remains a crucial trading partner for China, but under Trump’s first presidency, China's status as the U.S.'s largest trading partner began to erode, and this trend continued under President Joe Biden.

While Trump’s rhetoric on tariffs may sound harsh, it's seen by many as a negotiation tactic. Whether the tariffs will lead to a new trade deal with China remains uncertain. The Trump administration may seek concessions from China on various issues such as fentanyl exports, the ownership of Chinese tech companies like TikTok, and support for U.S. foreign policy objectives, such as negotiations over the war in Ukraine.

In response to the looming tariffs, some Chinese manufacturers have already begun relocating their operations to other countries. Businessman Huang Zhaodong, who now operates a factory in Cambodia, produces garments for U.S. giants like Walmart and Costco. Moving production out of China has become necessary for many businesses to survive the higher tariff rates. Huang says the additional costs from tariffs could wipe out his profits, and therefore moving production to Cambodia has been a strategic move.

In Cambodia, Chinese investments are growing rapidly. Chinese-run factories now account for a significant portion of the country’s textile industry, with many companies moving operations there to avoid the tariffs. These moves reflect China's broader strategy of expanding its economic influence through its Belt and Road Initiative, which focuses on investment in infrastructure and trade with countries across Asia and beyond.

Despite the growing costs of these tariffs and the reshaping of global supply chains, Chinese businesses are not without options. Many have successfully moved operations to Southeast Asia, where Chinese investment and labor markets are thriving. However, whether China and the U.S. can resolve their trade differences without escalating tensions remains to be seen, and with the potential for even higher tariffs, the future of U.S.-China relations is in a precarious position.

Kenny Yao from AlixPartners, who advises Chinese companies on managing tariffs, explains that this situation didn’t develop overnight. During Trump's first term, many Chinese businesses dismissed his tariff threats, but now they are concerned about the possibility of tariffs being applied to other countries as well. Yao suggests that Chinese firms should consider diversifying into regions like Africa or Latin America, even though it might be more challenging, to prepare for the worst.

As the U.S. focuses on putting its own interests first, China is working hard to present itself as a stable business partner, and early signs suggest it’s having some success. According to a survey by the ISEAS Yusof-Ishak think tank in Singapore, China has surpassed the U.S. as the preferred choice for countries in Southeast Asia.

While production has shifted overseas, China continues to play a significant role in the global supply chain. For instance, 60% of the materials used in Mr. Huang’s clothing factories in Phnom Penh come from China. Meanwhile, China's exports are thriving, with the country investing heavily in high-end manufacturing, including sectors like solar panels and artificial intelligence. Last year, China reported a record trade surplus of $992 billion, fueled by a nearly 6% increase in exports.

Despite these positive signs, Chinese companies in places like Jiangsu and Phnom Penh are bracing for uncertain times, if not challenging ones. Mr. Peng hopes the U.S. and China can engage in a “calm and amicable” conversation to keep tariffs within a manageable range and avoid escalating into a full-blown trade war. "Americans still need to buy these products," he remarked, before heading off to meet new clients.