China's factories seek to Trump-proof their business by going global

By Bloomberg News 

Weeks before Donald Trump returns to the White House, China’s factories are expanding production abroad and growing their customer base outside the US as they gird for new levies from the self-proclaimed “tariff man.” 

A sports gear maker is completing a new plant in Vietnam, hoping to dodge any new trade measures directed at made-in-China goods. A hat manufacturer plans to sell more to Europeans. And a metal castings company may turn its attention back to the Chinese market despite the slowing economy.

 

But factory bosses also acknowledged that their attempts to Trump-proof their businesses are vulnerable to the whims of his trade policies, underscoring growing anxiety even before the president-elect takes office.

 

Bloomberg News reporters spoke with factory managers and executives across China to find out how they’re preparing for a second trade war with a Trump-led US. Some asked that their names and those of their companies and customers not be published so they could speak openly about their plans. 

 

Home Sweet Home 

Company: Dawang Metals

 

Products: Metal castings

 

Customers: Major industrial equipment manufacturers

 

US exposure: About 50 per cent of sales

 

Facing potential US tariffs, the company is looking to sell more of its products elsewhere, including at home.

 

“We do mainly exports now because the profit returns abroad were better. But now if the situation abroad is not good, we can turn our focus back to the very reliable Chinese customers that have large order capacity,” said Heather Kuang, vice president of Dawang Metals.

 

The company has no plans to move production as the manufacturing process is energy intensive and requires raw materials from China, such as metals and foundry sand, underscoring the limits to Trump’s plan to use steep tariffs to entice companies to set up shop and create jobs in the US. 

 

Instead, any additional tariffs on Chinese goods might end up hurting the competitiveness of US companies that rely on them for inputs. China produces about half of the world’s metal castings, more than the next eight countries’ output combined, according to 2020 data compiled by the World Foundry Organization.

 

“If there are tariffs, the cost will definitely be transferred to the American people,” Kuang said. “US companies’ own production will likely have to decrease as well as there is no way to afford such a high cost. They will have trouble selling the products because competitors will be able to offer cheaper prices.”

 

But selling at home may mean thinner margins. Fierce price competition has weighed on manufacturers’ earnings in the last few years. 

Planning for President Vance

 

Company: Chemical and health product maker 

 

Products: Vitamins, amino acids and resin

 

Customers: Global beauty, energy, chemical and food companies

 

US exposure: Less than 20 per cent of exports

 

The company lost market share during the first trade war, when it maintained prices and left US importers to shoulder the tariff burden. This time around, it’s constructing a new factory in Eastern Europe, hoping imports from there won’t be tariffed — or at least not as highly. 

 

The chemical manufacturer is planning not just for the next four years but for the coming decade due to the possibility of vice president-elect JD Vance carrying Trump’s torch after 2028, according to a company executive responsible for investment and development.

 

The firm is considering moving production to the US, as Trump has threatened universal tariffs of 10 per cent to 20 per cent that would apply to his products even if they’re made outside China. He’s also worried that the US will use anti-dumping probes as weapons in the trade war, and is prepared to sell more to Southeast Asia and South America in the event of high US tariffs on his products.

 

The company representative said setting up factories in the US could be a “win-win” as it creates jobs in the country while helping the company maintain access to the US market. But he’d rather not to, calling China the most efficient place to produce.

 

Selling to Europe 

Company: Superb International

 

Products: Hats, scarves and gloves

 

Customers: Major retailers in the US and Europe

 

US exposure: 30-35 per cent of exports

 

Anticipation of Trump’s return has already hurt orders, said Howard Yuan, business manager at Superb International, which makes clothing accessories in eastern China.

 

“We have some US customers who used to order 10,000 or 20,000 pieces and are now reducing that to half because they don’t know what will happen,” Yuan said, adding that his company makes $20 million in annual revenue. 

 

The factory has a two-month lead time on hats, meaning that when products ordered now arrive at a US port — where imports are assessed for tariffs — Trump will have been inaugurated. With that raising the risk of encountering levies of a still unknown magnitude, the company is turning its focus to other customers.

 

“American clients are tough in this environment and there are too many variables, so we have to pay more attention to our European customers,” he said. 

 

The decrease in orders contrasts with front-loading seen in other sectors, where US importers stockpile raw materials and goods before any new trade measures kick in.

 

Hats, however, are a seasonal business. The company has cut production while it waits for customers to place orders based on what’s in fashion.

 

Brand Building 

Company: Yunbang Technology

 

Products: Stage lighting

 

Customers: Direct to end users through online marketplaces

 

US exposure: 65 per cent of sales

 

The Guangzhou-based company started in the stage lighting business in 2015 supplying to international brands, mainly from the US. In the lead-up to the last trade war, Yunbang felt the urgency to build up its own brand to expand its overseas market.

 

After three years of investing in research and development, Yunbang launched its self-owned stage lighting brand Shehds in 2018. Now, it’s betting its proprietary technology and rapid product launch pace will help it navigate tariff rises and maintain stable prices to its retail and corporate customers. 

 

It’s posted annual sales growth of more than 100 per cent in the past three years, with its own brand contributing 95 per cent of sales. It’s been top seller in the stage lighting category in major online marketplaces including Amazon and Ebay.

 

“With control of technology, innovation and brand building, I think we have full confidence to keep the growth momentum in the global market amid trade policy changes,” said Cheng Li, the company’s sales director. “We need to have bargaining power even when an uncertain market environment is normalised.”

 

Cheng said the lighting maker has made plans based on worst-case scenarios including a 60 per cent tariff. He’s confident the company would be able to reduce costs with further supply-chain optimization and digitalisation.

 

The US is still its biggest market, but Cheng said Yunbang is now accelerating expansion in other markets including Europe and Southeast Asia. 

 

China in recent years has ramped up lending to the industrial sector to help companies such as Yunbang move up the value chain, though some of that lending is now tapering off. 

Offshoring to Survive

 

Company: Outdoor sports equipment maker

 

Products: Kayaks and paddle boards, among others

 

Customers: Large retail chains

 

US exposure: Less than 20 per cent of sales

 

The year after Trump kicked off his first trade war in 2018, the factory’s owner planned to build a plant in Vietnam. Construction is expected to be complete next year, initially producing for Europe but eventually the US as well.

 

“We have tools to fight against the tariffs,” said Stanley Sun, a sales manager.

 

The company now sells about $5 million of goods in the US, mainly through retailers and online marketplaces. But while the country accounts for less than 20 per cent of the company’s sales, Sun said he’s concerned that the other markets will adopt the same kind of protectionist policy that Trump has threatened to intensify.

 

“Every European major country like France, Germany, Italy and Netherlands, there are going to be really far right wing in the future,” Sun predicted. “Those countries are going to isolate more than ever, which means they’ll come up with policies that protect their domestic industries too.”

 

“We’re looking for the best and we’re prepared for the worst.”