Chinese exporters predict Donald Trump will tap out of trade war with the ‘factory of the world’
The American president looms over this year’s Canton Fair, and its 30,000 exhibitors. But the view from the ‘factory of the world’? China’s manufacturers will prevail.
It is a Chinese scheme that would send Donald Trump and his anti-trade hawks apoplectic.
A manufacturer of massage machines — a “knee massager”, an “eye massager” and, the top seller in the US, a “leg massager” — admits the American president’s new 145 per cent tariffs on Chinese exports have created a problem for his factory in China’s south east.
The US is tied with South Korea as the Chinese manufacturer’s top market. Those sales halted suddenly as America’s tariffs hit unimagined heights last week as Trump and Xi Jinping went toe-to-toe in their heavyweight slugfest.
“It will affect us,” he tells The Australian at his booth at the Canton Trade Fair, which began on Tuesday in Guangzhou in China’s south.
Will they diversify and find new markets, as Beijing has declared? Up to a point. They are searching for a partner in Vietnam.
Will they open a factory there? No, he answers, without even the slightest evasion. They intend to sell the Vietnamese partner the finished product, which will continue to be made in the same Chinese factory in Fujian province by its 600-odd workers.
“(The Vietnamese partner) then puts it in another container with a stamp that says, made in Vietnam,” he tells The Australian. Loads of firms are doing it, he adds, beaming.
It is a key reason why customs data released by Beijing this week showed China’s exports to Vietnam soared 17 per cent in March. The scheme then was to evade the 20 per cent tariffs America had imposed on Chinese goods. Trump’s current arrangement – with tariffs on China set at 145 per cent while only 10 per cent on Vietnam – makes the channel even more enticing.
As the manufacturer was explaining the scheme to The Australian in Guangzhou, China’s President Xi was in Vietnam meeting its leader and fellow Communist, To Lam.
Trump described the visit as an exercise in “trying figure out, ‘How do we screw the United States?’”
The American president looms over this year’s China Import and Export Fair, better known as the Canton Fair, the biggest of its kind in the world. This year there are more than 30,000 exhibitors, a record, spread across a preposterously large venue in Guangzhou, the capital of Guangdong province, and the engine of the country’s manufacturing might.
More than 200,000 foreign buyers were out in force – from the Middle East, Africa, Russia, Southeast Asia, South America and a smattering from Australia – on Tuesday and Wednesday, inspecting goods, organising factory visits and haggling over prices to stock retailers and bazaars around the world.
Overseen by China’s Commerce Ministry, the Canton Fair is described by Chinese state media as the “barometer of China’s foreign trade”. There is no place in the world right now more useful to interrogate the impact of Trump’s tariff assault on China.
The view from the “factory of the world” is that, while Trump has hit them hard, China’s manufacturers will prevail. Most expect the President will extend the more than $100bn worth of carve outs he has already granted Chinese-made smartphones and laptops because of the impossibility of replicating China’s manufacturing model in a rich world country.
“How do you produce in America?” says a karaoke manufacturer from Foshan in Guangdong.
His factory of 100-odd workers has access to labour at prices that are unimaginable in America. It is surrounded by makers of the various components that allow him to build a home karaoke system for $US45 ($71) or one to be installed in a car for $US50 ($79).
Japan and South Korea out-compete him at the premium end of the market, but only Chinese firms can rival his price point. And Trump’s America? “Impossible,” he tells The Australian.
Should America make its own karaoke models? Its own retro bluetooth speakers? Its own handheld fans with one hundred speed settings? Its own lipstick shaped vapes available in 10 different flavours?
The Canton Fair is loaded with things whose production could only move to a rich world country if consumers were willing to pay a lot more for them. Most of the Chinese vendors have minuscule profit margins.
“Volume is our key,” explains a manufacturer of telco and internet kit.
For all of Beijing’s talk of diversification, Chinese manufacturers are hoping they can continue serving their biggest customer. Officially, China’s exports to America were worth about 15 per cent of its total to the world in 2024 – although the actual amount is higher because of various “grey channels”.
Many Chinese exporters say they have stopped new sales into America, but most have stockpiles inside the country which they built up in anticipation of Trump’s “Liberation Day” tariffs.
A manufacturer of bluetooth, noise cancelling headphones is one of many confident that the President will relent. “I think in three to six months,” he tells The Australian.
The business began in Dongguan, right in Guangdong’s manufacturing heartland, but has expanded into other parts of China where labour costs are cheaper. “Workers in Dongguan were too expensive,” he says.
China’s efficient infrastructure network made the cross-country expansion easier. It is another advantage, he said many Chinese manufacturers are reluctant to leave.
Walmart, the cost-conscious American retail giant, is one of the Chinese manufacturer’s biggest customers. They stockpiled months worth of inventory in America and think – or should that be hope? – that Trump will give an exception as Chinese products are whittled down and their over-size role for many American consumers becomes clear.
But with a blue chip American buyer, his factory won’t dare do the brazen switch-the-box in Vietnam workaround. So they are in the process of exploring opening a factory in Indonesia, although a final decision has not been made due to the flux.
If Trump’s tariffs on China were to stick, a greater migration of factories from China into Southeast Asia is likely. Despite Beijing’s projected unflappability, that would hurt.
Analysts at Goldman Sachs estimate between 10 million and 20 million workers in China may be exposed to US-bound exports. “The combination of extremely high US tariffs, sharply declining exports to the US and a slowing global economy is expected to generate substantial pressures on the Chinese economy and labour market,” they wrote last week.
On Wednesday, Beijing revealed stronger than forecast GDP growth of 5.4 per cent for the first three months of the year. But Trump’s huge tariff hit has led to widespread downgrades by analysts. ANZ on Wednesday lowered its growth forecast for China in 2025 from 4.8 per cent to 4.2 per cent.
The White House continues to call for Beijing to reach out and kick off negotiations between the world’s two biggest economies.
“The ball is in China’s court. China needs to make a deal with us. We don’t have to make a deal with them,” said White House press secretary Karoline Leavitt on Tuesday, reading what she said was a statement dictated by the President.
“There’s no difference between China and any other country except they are much larger, and China wants what we have, what every country wants, what we have — the American consumer,” the President’s statement continued.
Xi for his part continues to rebuff Trump, this week reportedly cancelling future orders of Boeing jets.
There was no sign of anti-Americanism at the Canton Fair, far from it. Budweiser was the only beer stocked at the Fair’s main cafe. All orders were negotiated in US dollars, still the currency of preference for the world’s traders, even in China.
Delivery drivers scampered around the gigantic venue, ferrying orders from on-site Starbucks, KFC and the President’s favourite, McDonald’s. Those three American consumer giants continue to make enormous profits in China.
Many Chinese exporters are furious at the American president (while totally silent about their leader’s role in their tariff dilemma). “It’s a total disaster for citizens in both countries, especially less wealthy citizens,” says a factory owner from Henan province, in central China. “And with Trump, who knows what will happen next?”
Others are doing their best to pretend that nothing has changed. The manufacturer of magnetic bluetooth speakers, designed to be stuck onto a golf buggy, said her American client had continued to make orders, even after the tariff hike.
How does that work? “Our customer said he has a way to get around it,” she tells The Australian, declining to give further details.
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