With the US elections approaching next November, many Chinese exporters are taking proactive steps to hedge against potential threats of imposing a comprehensive customs tariff that could reach 60% if Donald Trump wins, according to a report published by Reuters.
This step – which is considered a “powerful tool,” according to Mike Sagan, vice president of supply chain at KidKraft, may significantly impact Chinese supply chains and reduce China’s market share in the American market.
Early hedging and turning to alternative markets
According to a Reuters report, Sajjan stated that his company has already shifted 20% of its production outside China to countries such as Vietnam and India after the imposition of previous tariffs that ranged between 7.5 and 25% in 2018.
If Trump wins again, the company plans to reduce Chinese supply chains by 50% within one year.
On the other hand, exporters interviewed in the report expect that imposing a tariff of up to 60% will disrupt supply chains and raise production costs, which will negatively affect profits and investments.
Effects on growth and employment
In light of these expectations, any escalation in the trade war may lead to a decline in the growth of the Chinese economy, which relies heavily on the export of goods to the United States, according to Reuters.
Although growth in China has partially recovered after the imposition of previous tariffs, analysts’ expectations indicate that high tariffs may harm many industries and lead to a decline in economic growth rates.
Move towards productive alternatives
Reuters says that Chinese companies did not stand idly by, as many of them began building new factories in Southeast Asian countries such as Vietnam and India as a precautionary step against the expected escalation in trade relations between China and the United States.
But the high costs of production in these countries remain a challenge, as the report stated that production costs in India rose by 10% recently, which increases the challenges facing Chinese exporters.
The future is under Trump or Harris
Expectations indicate that Trump’s victory in the upcoming elections may lead to an acceleration of these precautionary operations, as Trump is considered the main threat to China’s exports to the United States, while exporters believe that Kamala Harris’ victory may lead to less hostile policies towards China, according to Reuters.
However, concern remains in Chinese business circles about the possibility of losing access to US markets if the trade dispute continues.
Reuters indicates that Chinese exporters are preparing to face a difficult stage in trade relations with the United States, in light of the continuing threats to impose high customs tariffs that may harm the Chinese economy and lead to the restructuring of global supply chains.
