Trump Tariffs: China’s Dominance in Manufacturing

President Donald Trump has imposed a second tariff on China within two months, resulting in imports facing a levy of at least 20%.

This latest move is part of his ongoing campaign against Beijing, which is already grappling with significant US tariffs, such as 100% on electric vehicles from China and 15% on clothing and footwear.

Trump’s tariffs target the core of China’s manufacturing engine—a complex network of factories and supply chains producing everything from trendy apparel to solar technology and electric vehicles.

In 2024, China’s trade surplus hit an unprecedented $1 trillion (£788 billion), spurred by robust exports totaling $3.5 trillion, significantly outpacing imports of $2.5 trillion.

China has long maintained its position as the “world’s factory,” benefiting from affordable labor and heavy government investment in infrastructure since it started opening its economy in the late 1970s.

The critical question now is how severely Trump’s trade war could undermine China’s manufacturing achievements.

Tariffs refer to taxes levied on goods imported from foreign nations.

Typically, tariffs are expressed as a percentage of the goods’ value, usually paid by the importer.

For instance, a 10% tariff on a $4 product imported from China would incur an additional charge of $0.40.

One intent behind raising prices on imported goods is to persuade consumers to choose more affordable domestic products, ultimately aiding their economy’s growth.

Trump views these tariffs as a means to stimulate the US economy, safeguard jobs, and increase tax income. However, economic analyses of the tariffs implemented during his initial term indicate that these measures generally resulted in higher prices for US consumers.

Trump asserted that his latest tariffs aim to compel China to take more action in curtailing the influx of fentanyl, an opioid, into the US.

Additionally, he has imposed 25% tariffs on neighboring countries like Mexico and Canada, accusing their leaders of insufficient efforts to halt the illegal drug trade across borders.

Analysts believe the answer is yes.

Exports have been crucial for sustaining China’s economy, and if these taxes persist, Harry Murphy Cruise from Moody’s analytics indicated that exports to the US could decline by 25% to 33%.

Given that exports represent about one-fifth of China’s total income, a 20% tariff could diminish international demand and reduce the trade surplus.

Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, explained to the BBC that “the tariffs will affect China” and urged that significant measures are needed to stimulate domestic demand, as underscored by Xi Jinping.

This task is daunting in a climate where the property market is faltering and many young professionals face difficulties finding lucrative employment.

Consumer spending is insufficient to rejuvenate the economy, prompting Beijing to unveil a series of stimulus initiatives aimed at encouraging consumption.

While tariffs may decelerate Chinese manufacturing, experts contend that dismantling or replacing it is not straightforward.

“China not only serves as a primary exporter but, in some cases, the sole exporter—for instance, in the solar panel market. If you’re seeking solar panels, China is your only option,” Ms. Garcia-Herrero remarked.

Prior to Trump’s presidency, China had already begun shifting its industrial focus from apparel and footwear to cutting-edge technology areas such as robotics and AI, securing an early advantage along with the sheer scale of production capabilities in the world’s second-largest economy.

Chinese factories are equipped to produce advanced technologies in large quantities at competitive prices, as described by Shuang Ding, chief economist for China at Standard Chartered.

“Finding a replacement for China’s manufacturing dominance is exceedingly challenging,” Ding added. “Its position as the market leader is not easily displaced.”

In response, China has implemented counter-tariffs ranging from 10% to 15% on a variety of US agricultural products, coal, liquefied natural gas, pick-up trucks, and some sports cars.

Additionally, it has introduced export restrictions targeting US companies within the aviation, defense, and technology sectors and initiated an anti-monopoly investigation against Google.

Over the years, China has adjusted to tariffs imposed during Trump’s first term, leading some manufacturers to relocate operations abroad. Supply chains have increasingly relied on Vietnam and Mexico for exports to navigate around these tariffs.

Nevertheless, analysts believe Trump’s recent tariffs on Mexico will not significantly harm China, as Vietnam remains a more favorable route for exporting Chinese goods, according to Ms. Garcia-Herrero.

“Vietnam is crucial,” she emphasized. “Imposing tariffs on Vietnam would pose significant challenges.”

Analysts highlight that beyond tariffs, China’s deeper concern lies in the US limitations imposed on advanced semiconductor technology.

These restrictions have become a significant contention point between both nations but have also intensified China’s commitment to developing independent technology.

For instance, the rise of Chinese AI company DeepSeek unsettled Silicon Valley and Washington when it unveiled a chatbot on par with OpenAI’s ChatGPT. The company had allegedly stockpiled Nvidia graphics chips before the US restricted access to them.

Even though this could “impact China’s global competitiveness, it is unlikely to alter its manufacturing supremacy,” asserted Mr. Ding of Standard Chartered.

Advancements in deep tech manufacturing could further elevate China’s high-value exports.

China’s emergence as a manufacturing giant can be attributed to state support, an unparalleled supply chain, and inexpensive labor, according to experts.

Chim Lee, an analyst at The Economist Intelligence Unit, explained to the BBC, “The synergy between globalization, coupled with China’s business-friendly policies and market potential, attracted an influx of foreign investment.”

The government also invested vast amounts into establishing an extensive network of roadways and ports to facilitate the import of raw materials and maximize the global distribution of Chinese products. Additionally, a stable exchange rate between the Chinese yuan and the US dollar aided this growth.

Recent shifts towards advanced technology ensure that China remains relevant and ahead of its rivals, analysts contend.

China has significant economic power stemming from its manufacturing dominance, yet there’s also a political opportunity created as Trump’s tariffs disrupt America’s global relationships.

According to Mr. Cruise from Moody’s, “China has an opportunity to step up as a champion of free trade and a stabilizing global influence.”

However, this role is complicated by allegations that Beijing has disregarded international trade standards, exemplified by its imposition of tariffs exceeding 200% on Australian wine imports in 2020.

Experts indicate that China needs to expand its horizons beyond the US, which remains its largest export market. Currently, China ranks as the third-largest export destination for the US, following Canada and Mexico.

While trade between China and regions like Europe, Southeast Asia, and Latin America is expanding, it remains difficult to foresee a scenario where the two largest economies can fully dissociate from one another.