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Hello, I'm Will Bain and welcome to Business Daily from the BBC World Service. China has always insisted it was an unwilling participant in the new trade war with the US, but it's also been clear...
If the U.S. insists on waging the tariffs war and trade war, China will play along to the end. As we look at the impact a month of tariffs has had on China today, we'll hear defiance. In China, we are not scared. Ordinary people have confidence in our country's economic power. Reasons for concern. The unemployment could partially be cushioned.
But that does not necessarily mean every single one is going to have a job. That is not going to happen. Pain will be felt across Chinese industries. And a warning to American consumers. In the case of Christmas goods, it means that Trump stole Christmas. I mean, that's the reality. And we'll try to answer a key question. Just how ready is China, its companies and its economy for a Trump trade war 2.0? We're going to take a look here on Business Daily on the BBC World Service.
With China, as you know, against my statement, they put a 34% tariff above what their ridiculous tariffs were already. And I said if that tariff isn't removed by tomorrow at 12 o'clock, we're putting a 50% tariff on above the tariffs that we put on.
It's one month on since President Trump gave that warning to China. It was a move which sparked a rapid ramping up of tariffs on each other's exports. These numbers just keep changing, as you know, and what we've just confirmed from the White House is that the new total rate against China is now 145% tariffs. China raises its tariffs on U.S. imports to 125%, upping the ante in the growing trade war between the world's two largest economies.
145% on Chinese goods arriving in America, 125% on American goods landing in China. It's ostensibly frozen trade between the world's two largest economies. But in China, the mood amongst the public seems to be clear. In China, we are not scared. Ordinary people have confidence in our country's economic power.
The Americans are tricky. We don't trust them. We have 1.4 billion people in the domestic market. That's enough. Well, how widespread is that feeling, though? And how well-founded is it? It's something we're going to explore throughout today's episode with Rebecca Chung-Wilkins. Rebecca is Asia government and economy correspondent for Bloomberg, based in Hong Kong, and by Duncan Clark, who has run his consultancy business BDA China in Beijing for more than 30 years. Rebecca,
Rebecca, how widespread do you think that feeling we heard there of defiance is? Yeah, this is a really interesting and I think a really significant shift in the dynamic that we've seen in China. It really emerged directly as a response to President Trump. I would say going into this year, there was quite a bit of defiance.
quite a lot of concern, discontent, unease around how President Xi Jinping has been directing the economy. He engineered this very painful economic shift away from property-fueled growth. It's obviously seen, for example, the value of people's properties tank. We've seen discontent rising in China as well. Protests, of course, not presenting an existential challenge to the party per se, but they do represent this kind of
as well as anxieties over job security. But what we've seen talking to businesses, small and large, we see a real shift in tone where people are sort of stirred up by this nationalistic fervor, where there used to be discontent, perhaps directed towards the government, now really focus and attention is directed towards the U.S. And I had one factory owner explaining to me that previously they'd never seen people so unhappy, but now the enemy is the U.S.
Yes.
China's exports also suddenly fell off a cliff and China started to say, well, we need to consume this stuff at home. And they did. We start to see a growing consumer economy here. So I think now is the chance. It is difficult, as we've heard from Rebecca, the resolve now to help, including these large Internet platforms, to get products that China makes for the world more into the hands of Chinese consumers. Rebecca, in the week that we're speaking, we've just had numbers from the Chinese government about exports, factory manufacturing. What did you take away from that?
Well, the top line here is that we are really finally starting to see tariffs really starting to cause pain. So essentially, we saw the end of front loading where US companies were increasing their exports ahead of anticipated tariffs. Now, we're really starting to see that come to an end and actually factories essentially are losing orders. So we're seeing some factories drastically shrinking their output. And essentially, the data for manufacturing, which you talk about, essentially came even below estimates. And tariffs were
particularly reflected in new export orders. So those fell about sort of four percentage points. And it's starting to hit estimates for GDP as well. And we think about in the first quarter when we had that sort of front-loading phenomena, GDP came in at 5.4%. Estimates now thinking for the second quarter, we're tracking somewhere around 4% to 4.5%. So we're down over a full percentage point.
Well, to get some insight on what's happening on the ground in China, we spoke to exporter Takke. His factory in Shenzhen ships 70% of its personal care electronic appliances to the United States because of those business links which involve travel to the U.S.,
as well and the current trade tensions, we agreed not to name his firm. He told us about the immediate impact the trade war was having in China. As soon as Trump announced he's going to raise reciprocal tariffs on pretty much the rest of the world, I'll
A lot of customers in the US, they basically tell us to stop shipping immediately. And in the coming days, when the tit for tat retaliatory tariffs went on between China and the US, the situation just become untenable. I mean, at 145%, there is practically no possibility of trade.
What does that mean then for your business? We have to stop production on existing orders. In some cases where we have work in progress on assembly line already, we come to an agreement to finish the goods, but we would hold it in our warehouse. In the longer term...
Most factories do have some cash reserve to basically ride this out for maybe a month or so. But if this goes on any longer, I don't see how any of these factories, us included, can survive. And so losing 70% of your business, we have to make some drastic changes. Could you make it up, make up some of that ground, that 70% selling at home? Let me speak more broadly.
about selling in China. The government is doing a lot. They are providing rebates and subsidies, especially for domestic
appliances. And that has some impact for my company specifically, because our products occupy a slightly different niche where the products do not always translate directly to sales in China. So we are finding less success in that area. But I think the overall drive to drive up consumption is still a good idea because it gives China more of a bargaining. And it would also help absorb
some of the jobs that might not be sustainable. The issue all the way around, by the sounds of things from what you're saying, is the pacing of all of this. That is a big part of it. I mean, the timing and the way these tariffs are ratcheted up so quickly, it caught everybody off guard. There are opportunities for us to expand some product lines to manufacture in Southeast Asia, for example, but that will take some
some time to set up properly. In the best case scenario, even if I can get an assembly line up and running in Southeast Asia in six months, the question is, where is all of this going to go if the Trump administration decides tomorrow that he is going to sit down and talk with China, then I would have moved a lot of pieces and invested a lot of money overseas for nothing.
Exporter Tatkei there. Well, how ready is China and its economy more broadly for that increase in pressure? Dr Zoe Liu is the Morris R. Greenberg Senior Fellow for China Studies at the Council for Foreign Relations think tank in the United States. Small and medium-sized enterprises, they are the driving force of a Chinese export and they are also the driving force, the pillar of a Chinese employment. Assuming that if at high tariff level does not get winded back,
soon, we are likely going to see high level domestic industry and manufacturing consolidation because the profit level of small and medium-sized companies in China are very, very low. As of last year, the average profit level is about 5.1%. And they cannot even withstand 10% tariff. So forget about 125%. At this level, then that is going to lead to rising unemployment. At a huge level, right? Yeah.
I mean, we're talking potentially millions of people. Potentially, yes. But that does not necessarily mean it will happen at that massive level. And the reason is because of the Chinese government. We have been preparing for rising trade tensions over the past five years. In fact, it's...
From 2018 to now, the United States and China has been engaging in this low-level trade tension for over seven years. So the Chinese leaders, they've seen it happen and they have prepared policies since 2023 to boost small and medium-sized enterprises to help them have jobs.
Dr Zoe Liu there.
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You're listening to Business Daily on the BBC World Service, looking at how prepared China and its economy is for Trump's trade war 2.0. And with us today are an expert panel, including Duncan Clark, the chairman of BDA China, whose company has worked with Chinese businesses for more than 30 years, and Rebecca Chung-Wilkins, Bloomberg's Asia
Asia government and economy correspondent who's with us from Hong Kong. Rebecca, how prepared is China compared to that first trade war in the first Trump presidency? First and foremost, what's different this time is that initially President Trump did not just announce a plan to target China, but actually a plan to target countries like
all around the world where he perceived there was an unfair balance of trade. And so that's a very different shift, essentially upending that model of trade. Now, much of that has, of course, now been paused. But that adds a whole level of uncertainty to that ability for Chinese traders. I totally agree. You should never bet against the Chinese trader. But it does sort of limit their ability to respond and their move to respond.
By and large, I think Beijing was caught unaware the first time around during that trade escalation and the trade war. This time around, they have very much been much more prepared. And they have also prepared a whole bunch of measures that are essentially going to provide a buffer for some of those companies.
And there is clearly, you know, policymakers have demonstrated a greater tolerance for pain when it comes to negotiating any kind of potential trade deal between the US and China. We have not seen China sort of jumping up and down to sit down with the US. And in fact, we have seen China repeatedly denying that trade negotiations had even begun, disagreeing with various officials in the White House. And that really does underscore the sort of reluctance and the position of strength that
perhaps Beijing does feel it's in. However, that's not to understate the amount of pain that small and medium-sized firms will be experiencing. To Dr. Liu's point there, just because the policymakers and local governments may be prepared to deal with the trade war doesn't necessarily mean that the companies themselves are able to tolerate that pain. Yes, I agree on the small and medium-sized enterprises. You know, don't forget that China has emerged from the very damaging zero COVID period and also the sort of
attack, if you will, on the non-public or the private sector. I think we saw the consequences for China's growth. And then we've seen this meeting between Xi and these leaders of the tech companies and generally talking a lot more positively about the private sector. I think this time the Chinese government will be careful not to put too much of the pain onto these companies because they know that they're the ones who provide employment and growth.
So at least in this case, I think lesson learned that SMEs are important. There's going to have to be a lot of steps to help them absorb the pain, including better relations with state companies and also getting these tech platforms to help push out products to Chinese consumers really kickstart. As we heard, the Chinese economy is too much about production. It's the inverse of the US. Only a third of the economy is about consumption. It needs to be that.
closer that two-thirds of the US has become. And so I think we're going to see a supportive policy environment for SMEs. To shop is glorious, to rephrase that, to get rich is glorious. The shop is open. Well, everything we've heard thus far leads us to perhaps the key question, who will blink first? Another person who has more than a passing interest in the answer to that question is Jacob Rothman. Jacob is an American businessman who has lived and worked in China like Duncan Clark for more than three decades. His company, Verlong Enterprises, is
exports grilling equipment and other household and kitchen essentials from the export hub of Guangzhou. You have factories who depended on the US markets, pretty much stopped their production. They're only based in China. You have other factories that are a little bit more diversified, laying off 20 to 30 percent of workers. These are broad estimates. And also you have to look at the China market in different segments. Oftentimes the news is focused on the companies that
The United States is competing with whether it's YD or Huawei or Deep Sea. But really, the majority that makes up the supply chains are small and medium sized businesses. And it's been devastating. What does it mean for consumers? Consumers in the United States is fallacy that President Trump has truly put. It should convey as the American public that China is paying for it.
They're not. Consumers are paying the brunt of it. But on this side, what people are not talking about, not understanding is that the supply chain in China has been built to be best in class, just in time system. And when you stop that, things break. Factory workers are laid off. Raw material supplies run short. Now,
not to mention ships. Ships are not just hanging around at port waiting for things to get better. They've been redeployed. My biggest fear is that if things come back online, China will not have the ability to put it back together in a way that will solve retail needs and consumer needs. What would that mean? I mean, let's take an example. I started my career doing holiday goods, Christmas goods, holiday gifts. Typically, orders are sent
Around now, in May, we have about 60 days to produce them, and they ship usually through late October. Well, if all of a sudden President Trump says, OK, we're going to pause this like he has with other countries, the ability of us to rehire workers, to book freight, and to make things in a fast way has been damaged, and it compounds every day that this goes on. So in the case of Christmas goods, it means that
Trump stole Christmas. I mean, that's the reality of things. If gifts, Christmas trees, Christmas lights don't get on the water in the next 60 days, Americans will not have gifts under their trees. So I don't know who President Trump thinks he's hurting, but it's going to be devastating in the United States.
That question of who blinks first is one we put to our personal care products exporter too. This is Tatke again in Shenzhen. For a product that we produce and sell at $10, it would be retailing in a Walmart for close to $60. And the importers might take like a 20% gross margin. The retailer is taking a 50% gross. We're making barely 3% profit. So who is really taking advantage of who here?
I just find that astonishing that the logic has been turned upside down. Right now, I can see the pressure falling more on my American counterparts. If this goes on for longer than, let's say, four months, a lot of importers are going to go out of business.
Now, the impetus going out of business would mean loss of jobs, empty shelf spaces. But more importantly, it actually opens up the door for Chinese companies to just directly sell into the US and go direct into consumer. That's a lose-lose for them. And I don't think they are willing to tolerate that. On the other side, you have companies that obviously they're losing out on the US market, but they're not going to exert the same amount of pressure on the Chinese government because...
The export to the U.S. market is a relatively small percentage of China export to the rest of the world. And so there is more of a pain tolerance. That's exporter Tatke in Shenzhen, bringing us just about to the end of this edition of Business Daily. It was produced by Josh Martin. Thanks so much for listening.
Toyota is the best resale value brand for 2025, according to kellybluebookskbb.com. And with a wide range of dependable vehicles for any lifestyle, you can get everything you need in a vehicle today while investing in tomorrow. So choose Toyota and choose value. Shop buyatoyota.com for great deals and more. Vehicles projected resale value is specific to the 2025 model year. For more information, visit kellybluebookskbb.com. Kelly Blue Book is a registered trademark of Kelly Blue Book Co. Inc.
Toyota, let's go places.