Spark Deep Dive: How Donald Trump’s proposed tariffs on China could change manufacturing

Peter Wang owns a factory that manufactures insoles for shoes in southern China. He doesn’t like to picture what life would be like under the tariffs proposed by US president-elect Donald Trump. Instead, he chooses to think about the relatively low-stress environment for the Chinese businesses who have relocated to Southeast Asia.

Wang has already reduced his operations in the southern city of Dongguan. A significant rise in import taxes from the US would be the kiss of death. About 80 per cent of his products are sold there.

“If the tariffs are imposed, my workers will lose their jobs, and I may move to Southeast Asia to look for opportunities,” he said. That region has been a popular destination for many Chinese manufacturers. This is because shipments can be sent through countries there to avoid US tariffs.

Trump has proposed a 60 per cent tariff on all goods made in China. This could slow economic growth. China relies heavily on exports.

Analysts believe China is better prepared now than during the initial tariffs during Trump’s first term. There are more options to cushion the impact of whatever comes next.

Larry Hu is the chief China economist at Macquarie Capital. He believes a 60 per cent tariff by the US could cause China’s total exports to fall by 8 per cent within 12 months. Its gross domestic product (GDP) could decrease by 2 percentage points in the same period. This could have a significant effect on the economy.

It would also mean a roughly 1 per cent hit to major Western economies over the first 12 months, according to analysts from Barclays bank.

Allianz Research released their own predictions, too. They said that almost a third of the world’s GDP growth would be lost over the same period if there were a 60 per cent tariff on Chinese goods.

For Wang, the simplest answer would be relocating to Southeast Asia. This would mean lower production costs and milder tariffs.

For now, he can only rush to ship out goods before Trump officially becomes president and enacts new tariffs. “When January comes, everyone will be cautious about whether to accept new orders,” he said.

If new tariffs were announced after a bundle of new shipments were confirmed, “the loss would be unbearable,” he said.

Staff writers

1. Based on the news, which of the following is true?

(1) Donald Trump has proposed a 60 per cent tariff on Chinese goods.
(2) Under Trump’s proposed tariffs, a third of the world’s GDP growth could be lost after 12 months.
(3) Trump’s proposed tariffs in Southeast Asia would be as strict as the ones in China.
(4) One expert predicted that Trump’s tariff proposal would cause an 8 per cent fall in Chinese exports after two years.

A. (1), (2) only
B. (2), (4) only
C. (1), (3), (4) only
D. (3), (4) only

2. List TWO ways in which Peter Wang’s business could be affected by increased tariffs from the US.

3. According to the news and your own knowledge, why does Southeast Asia appeal to Chinese manufacturers?

1. Based on the news, what does this cartoon represent?

2. Where is the bus travelling to? How is this significant? Explain your answer using the cartoon and the news.

tariffs: taxes or fees the government puts on goods from different countries. These may be used to regulate international trade or encourage people to buy things made in their own countries.

import: to bring in goods from another country to sell or trade.

export: to send goods out of the country to sell or trade.

gross domestic product (GDP): how much a place produces in a certain amount of time. To find a country’s GDP, add up all consumer spending, investment, government spending minus taxes, and the value of exports minus imports. The final number gives us an idea of a country’s economic health.

1. A

2. With most of his products exported to the US, Peter Wang’s company would struggle significantly if Donald Trump followed through with his plan to put massive tariffs on Chinese goods. Wang claimed that many of his workers would lose their jobs, and he might need to move his business. He will also be cautious about accepting new orders in the new year.

3. Manufacturers can avoid tariffs by sending shipments from and through Southeast Asia to the US. The tariffs would be cheaper, and the region would have lower production costs, making it a popular location for many businesses.

1. This cartoon shows how difficult it would be for China to move forward in its economy and ship exports with the tariffs proposed by Trump. The bus represents China, as seen through the flag. It is being blocked by signs that say ‘trade barrier’, showing how Chinese trade will be hindered moving forward.

2. The bus is travelling to Southeast Asia, representing how manufacturers and businesses are looking to relocate to the region, as there are fewer tariffs and lower production costs.