One of Cui’s clients, a manufacturer of electrical transformers, was already shifting production to Malaysia. Another, an auto-parts producer, was looking to move manufacturing to Thailand. Both had urgent requests: Could Cui help them speed up the process?
“Companies are in a panic and looking for solutions,” Cui said in an interview.
Many Chinese manufacturers thought they could weather the 10% in additional tariffs imposed by the Trump administration in early February. But the latest 10% proposed tariff increase—slated to take effect Tuesday—represented a doubling of the pain, and offered an omen of more ahead.
Chinese manufacturers that planned to cut prices to help customers absorb the initial tariff bump are now contending with potentially higher duties for their clients. Those already operating on razor-thin profit margins could be squeezed even further.
Trump’s new tariff proposal adds more urgency to plans among Chinese manufacturers to shift production outside the country, especially to Southeast Asia. Making and shipping goods from other countries means U.S. importers can avoid paying the higher duties on Chinese products—that is, unless Trump targets those countries, too.
Trump’s latest tariff proposal adds more urgency to plans among Chinese manufacturers to shift production outside the country.
When Trump raised tariffs on Chinese goods during his first presidential term, many companies embraced a “China plus one” strategy, seeking alternatives to China as the world’s factory floor.
Countries such as Vietnam have been big beneficiaries, attracting increased investment from companies based in China and elsewhere. Products from Vietnam made up more than 4% of U.S. goods imports last year, up from about 2% in 2017, according to the International Trade Centre’s analysis of U.S. Census Bureau data.
But Trump’s trade-policy ambitions in his second term extend beyond just China. His administration is pushing ahead on plans to levy duties on Canada and Mexico, and has proposed reciprocal tariffs that could raise taxes on imports from many countries. The White House is also moving to restrict investments in the U.S. from China.
For Xue Feng, owner of Shanghai Jefa Machinery, word of fresh tariff increases has spurred him not to rapid action, but rather caution about making any drastic moves that he may later regret. His company makes valves used in oil drilling and sells mostly to U.S. customers.
Xue was considering moving some production to the U.S. to head off even higher tariffs and ride stronger demand for valves under Trump’s push for further growth in domestic oil production. Now, he is having second thoughts. He said he can stomach some tariff increases for now because his products sell for half or even one-third of the prices offered by American competitors.
“With all the changes happening, the uncertainty is getting bigger. If we’re scrambling and miss a beat, the consequences can be disastrous,” said Xue.
China’s Ministry of Commerce said Friday that China opposed the imposition of unilateral tariffs, urged the U.S. to engage in talks to work through differences and vowed to carry out countermeasures if necessary. Trump has tied both of his announced tariff increases so far in his second term to China’s role in the global fentanyl supply chain, which the Chinese Commerce Ministry spokesman described as an attempt at “passing the buck.”
Smaller Chinese manufacturers with limited resources are in a bind, said Ken Huo, a manufacturing consultant in Foshan, a factory town in southern China. Those businesses can’t easily afford to make big investments, such as new facilities in Southeast Asia.
Huo is part of a trade association in Foshan, a hub for furniture makers. He said his WeChat messaging app was lighting up with local business owners expressing confusion and fear in light of the latest tariff announcement.
“The worst thing is, we really don’t know what is the next move by Trump’s administration on tariffs,” he said.
Chinese leader Xi Jinping has shown little interest in a deal solely focused on fentanyl but aims to negotiate a broader agreement that could define the tone of bilateral relations with the U.S., The Wall Street Journal has reported.
Economists largely agree that tariffs make products more expensive for American consumers. Edward Rosenfeld, chief executive of footwear maker Steve Madden, said on an earnings call Wednesday that the company “will be selectively raising prices” in the fall to counter the effect of tariffs.
Steve Madden said it is continuing to move production away from China. The maker of shoes and fashion accessories said that so far this year, 58% of the goods it imported into the U.S. had come from China, down sharply from 71% reported in November.
Cui, the lawyer, said he has two pieces of advice to clients: diversify customer bases to rely less on the U.S., and shift production elsewhere to reduce tariff risks.
Write to Clarence Leong at clarence.leong@wsj.com and Hannah Miao at hannah.miao@wsj.com