China Market Insider Trump unsettles manufacturers in China

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China's manufacturing industry is preparing for the second "Trump shock." The recently re-elected US president had announced even higher punitive tariffs on goods from the People's Republic during the election campaign.

Trump had spoken of additional tariffs of 60 percent or more on all imports from China. Most observers in Beijing, including analysts in leading banks, economic experts in think tanks, and US experts at the country's universities, assume that he will at least partially carry out his threats.

The only uncertainty is the final amount of the additional tariffs. During his first term, Trump had already imposed additional tariffs of between 10 and 25 percent on Chinese manufacturers.

During the recently concluded election campaign, he had increasingly intensified his rhetoric against China. Trump had said that the word "tariff" was the most beautiful word in the dictionary for him. And according to various statements, he believes that China and the coronavirus pandemic thwarted his re-election after his first term.

For these reasons, even higher tariff barriers for exports to the USA are generally expected in China than at that time. However, an element of uncertainty remains. "Due to the high unpredictability, it is difficult for China to have a fully formulated Plan X ready," said political scientist Da Wei from the Center for International Security and Strategy at Tsinghua University in Beijing to Reuters news agency.

Automotive industry in focus

China exports goods worth more than $400 billion (around 375 billion euros) per year. In addition, there are several hundred billion for components sold to manufacturers in the US via third countries.

The Trump shock is likely to hit China's automotive industry particularly hard. As is common in election campaigns, both Trump and his opponent Harris had targeted this industry because it is known to attract the most votes.

For direct imports of cars from China, Trump threatened tariffs of 100 percent during the election campaign, occasionally even 200 percent. Both would not be dramatic from the Chinese perspective for two reasons: First, the current US President Joe Biden has already introduced punitive tariffs of 100 percent on Chinese electric cars, which effectively prevent the import of such vehicles into the USA.

And secondly, Chinese car exports to the USA have never reached significant proportions anyway, even if that sounds surprising given the high level of politicization of the subject. In the first eight months of this year, just 61,000 vehicles were exported from China to the USA.

Many observers believe that suppliers in the Chinese automotive industry could be hit harder by the next round of punitive tariffs. From January to August 2024, they delivered auto parts and integrated components worth the equivalent of 11.3 billion euros to the USA.

Even if Trump were not to demand an additional 60 percent tariff but only the 10 percent he has suggested for all imports into the USA, regardless of the country of origin, these Chinese suppliers may now have to look for new sales markets.

However, the strategy previously seen as a possible "loophole"—opening plants in Mexico and exporting from there to the USA—will likely no longer work during Trump's second term. He spoke of tariffs of 200 percent, if necessary even 1,000 percent, to prevent the export of Chinese cars from Mexico to the USA. BYD and others who had considered this path are now likely to finally refrain from it after the election result.

China's high-tech manufacturing aims to become even more independent

The limited reorganization of global supply chains, which had cautiously begun during Donald Trump's first term, is likely to accelerate somewhat under "Trump 2.0." A number of manufacturers, particularly in traditional manufacturing sectors such as clothing or furniture, have intensified their search for new locations in Southeast Asia shortly after Trump's re-election, according to Chinese media reports.

However, this path is generally not really open to companies in advanced manufacturing, including many German companies that produce in China. The advantages of production in China, such as complete supply chains, still relatively good availability of well-trained workers, and the attractive Chinese domestic market, do not disappear overnight, no matter who reacts in the USA. These location advantages cannot be found in Southeast Asia, Mexico, or Brazil.

However, it is expected that the Chinese government will now intensify its efforts to make the country's high-tech manufacturing even more independent from Western imports. In addition to punitive tariffs, the introduction of further trade barriers in the style of semiconductor and equipment boycotts was already discussed before Trump's re-election—such as a new ban on autonomous and connected vehicles made in China in the USA.

Thus, from January 21, 2025, when Trump is sworn in in Washington, not only is an intensification of the trade war expected, but also concurrently an intensification of the "chip and technology war" between Washington and Beijing.

*Henrik Bork is Managing Director at Asia Waypoint, a consulting agency specializing in China with headquarters in Beijing. "China Market Insider" is a joint project of the Vogel Communications Group, Würzburg (Germany), and Jigong Vogel Media Advertising in Beijing.