To avoid steep price hikes for consumers, US businesses are pressuring their Chinese suppliers to lower prices after President Donald Trump imposed massive tariffs.
Those attempts will likely fail, production management companies and supply chain experts told Business Insider.
“If you already reduced your pricing in the past for your US clients, you probably don’t have much space to do it again and again,” said Jonathan Chitayat, CEO of Genimex Group, a contract manufacturing company. “You can do it for an order or two, but the next time your customer asks you for a price, you are going to work on the reality that you have to be a profitable business and you can’t continue losing money.”
Genimex Group helps US companies engineer and manage manufacturing for electronics and kitchenware, which often means working with overseas suppliers in Asia. Chitayat said that a large part of the job now is negotiating with factories to mitigate the tariffs. Still, because that possibility is shrinking, many US clients have already raised their retail prices.
“Everyone’s already under pressure and has been asked that question before,” said Chitayat. “There are no subsidies that we’re aware of that the government in China is giving to manufacturers, so they mostly don’t or have very, very little margins to give.”
Trump has a history of imposing tariffs on China since his first presidency in 2016. The manufacturing hub also became his main target during his “Liberation Day” announcements, during which he said China had a 67% tariff on the US, among several other figures representing other countries’ duties on the US that could not be found in past trade documents.
Despite announcing on Wednesday that his tariff policy would be temporarily suspended for 90 days on more than 75 trading partners who did not respond with retaliatory measures, Trump said on Thursday that a 10% blanket tariff on all countries still stands and that tariffs on China total 145%.
Trump wrote on Truth Social that these tariffs are “effective immediately” and “based on the lack of respect that China has shown to the World’s Markets.”
China retaliated against the initial US tariffs with an 84% counter tariff and raised the amount to 125% on April 11, calling the US a “joke.” The Ministry of Finance in China added that, given the price tag, there is no longer any “market acceptance for US goods exported to China.”
Tariff burden will fall on consumers
“There has historically been this pressure to who’s going to eat the tariff, and I don’t think there’s much room to move on that now,” Willy C. Shih, Professor of Management Practice in Business Administration at Harvard Business School, told Business Insider. “China is already hyper-competitive.”
Shih said that if the Chinese Yuan depreciates, that could help absorb some of the tariff shock. However, that would be insufficient to keep costs down for many products like electrical equipment, which already faced Section 301 tariffs before the most recent “reciprocal” tariffs enacted under the International Emergency Economic Powers Act.
He said many of these products, such as liquid crystal flat panel displays for televisions, were never made in the US in the first place.
“You can distribute parts of the tariff among all the parties in the supply chain, but these numbers are so large now that they’re going to have to be passed on to consumers,” Shih added.
Some supply chain experts have also told BI that China’s internal economic issues have affected its ability to mitigate external shocks, which could harm both countries.
“Chinese manufacturing firms have faced declining margins in part due to falling domestic demand,” Sara Hsu, clinical associate professor of supply chain management at the University of Tennessee, told BI, “so there is already weakness in this sector from last year.”
Andrew Collier, Senior Fellow at the Mossavar-Rahmani Center for Business and Government of the Harvard Kennedy School, told BI that due to the collapse of China’s property market and the subsequent loss of property revenue for local governments, there’s little room for Xi Jinping, the Chinese president, to prop up manufacturers.
“Xi faces some domestic pressure from unemployed workers, disgruntled property owners, and small businesses selling goods to the US,” said Collier. “The political pressure on Trump in a democracy is likely to be much higher once people realize how bad the economy and markets are.”
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