China’s prices are too low for buyers to sweat about tariffs

Traders at the Canton Fair say the world will need Chinese goods no matter what. — Bloomberg

GUANGZHOU: China can withstand any new tariffs the world throws at it – even the punitive ones Donald Trump is planning if he wins a second presidential term – because its prices are simply too competitive to resist.

That’s the predominant view at this month’s Canton Fair. Many buyers and sellers at China’s biggest trade event, held here, shrugged off the risk of an escalating trade war.

“My customers told me even a 50% tariff won’t come close to driving them away,” said Jack Jin, who sells cargo-control tools and truck parts from South-East China. He says about half his orders come from Americans – who can sell his products for four times what they pay him.

Tension between China and its trading partners is escalating in a US election year, amid allegations the world’s top manufacturer is dumping goods and unfairly subsidising industries.

The list of targeted products is getting longer, including metals and ships as well as electric vehicles (EVs).

Trump says he might impose an across-the-board China tariff of more than 60%. President Joe Biden – his opponent in November’s election – last week pledged to triple charges on Chinese steel, an area where emerging economies have voiced concerns too.

The European Union launched a probe into Chinese EV subsidies that could lead to new tariffs within months, and is scrutinising the solar and rail industries.

But traders at the Canton Fair say the world will need Chinese goods no matter what.

They’re coming up with workarounds for tariffs. And even buyers who are looking into supply-chain alternatives said they still expect China to remain their top source, because other countries lag in quality and cost.

Samuel Jackson, who was at the fair as a purchaser for a Bosnian furniture company, said he can get products of “very, very similar” standard at half the price that European makers charge. Tariffs might have some impact, he said, “but China is too big a country. They have other countries to sell to.”

For Alex Student, an auto accessories importer from California, it’s US consumers who’ve borne the brunt of tariffs on China-made goods.

His retailers at home refused to pay higher prices when Trump slapped on the taxes, and instead asked him to get the producers to supply a slightly cheaper version.

“At the end of the day, who paid? The consumer,” he said.

“You either give something up in terms of the quality of the product, or you give up more money for the same product.”

Student described one way he found to offset the tariffs, by switching to so-called Free On Board pricing. That meant logistics and warehousing costs were left to his US customers – and the sale price, on which tariffs are based, came down. There’s “a lot of different ways to skin the cat,” he said.

Chinese products are cheap even for buyers from less developed countries. Daniel Lulandala, owner of a machinery trading company in Tanzania, was on his first trip to China and excited about being able to negotiate directly with local manufacturers.

He found the prices on offer at the Canton Fair so low that it’s led him to expand his business ambition, and he’s now thinking of opening a factory back home to make building blocks, using a Chinese machine that costs about US$8,000. He’s confident he could earn that back within just three months.

“If I was here a few years earlier, I could be somewhere higher now, business-wise,” Lulandala said.

Out of 125,000 foreign buyers who’d attended the fair through April 19, only 18% were from the United States and Europe, according to the organisers.

That’s not just down to trade tensions, but also because ties with those economies are well established and the buyers tend to be larger if fewer in number.

Two-thirds of attendees come from the mostly emerging nations that are part of Beijing’s Belt and Road infrastructure plan, up from about half a decade ago.

Of course, importers who made the trek to Guangzhou are likely among the China optimists - and some producers there did express trade-war concerns.

A saleswoman for a Shanghai producer of plastic strapping, who asked not to be identified discussing her concerns about the economy, said she was worried by the prospect of another Trump presidency.

She said her company has been scraping by in the past few years, under pressure to keep developing more products even though profits were falling, and described business conditions as akin to a rat race.

If China’s falling production costs impress foreign buyers, they’re also a symptom of weak demand at home, where households are reluctant to spend after a prolonged real estate slump that’s left the country at risk of deflation. — Bloomberg

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