A Chinese aluminum product manufacturer’s sales director, Jeremy Fang, is aiming to increase exports to Asian, African, and Latin American markets to counter the impact of US tariffs. However, he told Reuters that competitors have similar intentions.
“This will only lead to a crazy ‘survival of the fittest’ rat race,” Fang said. “Companies will have to lower prices and accept lower profit margins. The market is only so big, and everyone wants a piece of the pie, so competition will become extremely fierce.”
The US-China trade war escalated this month, with President Donald Trump imposing a 10% tariff on Chinese imports, followed by retaliatory measures from the Chinese government. Yet, this is just the beginning.
Facing challenges of weak domestic demand and tightening conditions in the US market, Chinese manufacturers have no choice but to flock to other export markets. Nonetheless, no other country’s consumer power can be compared to the US.
Tariffs will intensify price wars among Chinese exporters, squeezing their profit margins and potentially triggering more political backlash in new markets, even further exacerbating currency tightening. If companies have to lay off employees, cut wages, or reduce investments due to shrinking profits, this risk will escalate.
“While diversification of markets is understandable, it may not be sustainable,” said Frederic Neumann, Chief Economist for Asia at HSBC. “One risk is that suddenly all Chinese exporters are targeting the same new markets, further impacting firms’ profitability.”
“But the real risk is that recipient countries may eventually be forced to impose restrictions on China,” he added. “Because local manufacturers are under pressure.”
Tensions have already escalated. In the past year, the EU raised tariffs on Chinese electric cars, while India, Indonesia, and other emerging markets have introduced trade barriers on certain Chinese products, putting Chinese businesses under survival pressure.
“My company has almost no profit margins,” said Richard Chen, owner of a Christmas decoration factory in southern China. “I am not sure if I can retain all 80 employees this year.”
“We are trying to enter the Polish market,” Chen said. “But their buying behavior is completely different from American consumers.”
Price wars in overseas markets may accelerate deflationary pressure in China.
“US retailers are demanding a 10% price reduction,” said a manager at a bathtub factory in Shijiazhuang (about 300 kilometers from Beijing). “But I am hesitant because I have already cut wages by 10% to 15% to stay competitive.”
“There are too many enterprises in China engaged in foreign trade,” said the anonymous manager. “This industry has become very challenging for everyone.”
At Jialifu Electric Vehicle Company, which primarily sells electric scooters and tricycles in the domestic market, manager Li Yongqi said he expects to have to lay off employees and reduce salaries. Amid the ongoing Chinese real estate crisis, sluggish domestic demand has led to a 20% to 30% decrease in his profits.
“Enterprises in various industries in China are expanding into overseas markets, but this has resulted in various governments imposing tariffs and sanctions on Chinese products,” Li said. “Most factories are downsizing to reduce costs.”