Trade war: Chinese exporters’ front-loading beats U.S. tariffs, but for how long?
Guangzhou Seagull Kitchen and Bath Products, which relies on the U.S. market for over a third of its revenues, has been running its production lines in China around the clock for the past three months, according to its workers.
Uniformed employees outside its factory compound said they were working 12-hour shifts to expedite orders for early next year, making sure their tap handles arrive in the United States ahead of a scheduled tariff increase.
The bathroom fixtures Seagull makes are on the list of $200 billion worth of Chinese products on which the U.S. imposed a 10 percent duty starting on Sept. 24, and which is set to rise to 25 percent on Jan. 1 if Beijing does not make trade concessions.
“Many of us have to work rotating [12-hour] shifts from 8 p.m. to 8 a.m. or 8 a.m. to 8 p.m. each day,” said a migrant worker in his forties, who declined to be named. He and his colleagues were having a late lunch, costing 12 yuan ($1.70 in U.S. dollars) each, in a small restaurant outside the factory on the outskirts of Guangzhou, the capital of south China’s Guangdong province.
Analysts have said the practice by Chinese exporters of accelerating production and shipment now to avoid the upcoming tariff increase — or “front-loading” orders — is one probable reason behind China’s strong export performance since Washington started to levy its first round of tariffs on Chinese imports in early July.
The practice may be widespread, because Chinese exports of chemicals, non-ferrous metals, plastics and special industrial machinery were the fastest-growing Chinese export categories in September, according to Chinese customs data, despite all of them being included on U.S. tariff lists.
But
fulfilling next year’s orders so far in advance could lead to a significant slowdown in future sales if U.S. clients reduce their next orders accordingly. China’s official purchasing manager’s index has shown new export orders have been contracting since June.
Ding Shuang, the chief China economist at Standard Chartered bank, who has just visited exporters in the eastern province of Zhejiang, said many companies were doing the same as Seagull and the production frenzy could last the rest of the year.
“Increased demand for shipments has pushed up shipping rates and some exporters are even having trouble finding any space on cargo ships,” Ding said. But the situation could quickly turn bad next year, he warned, as exporters face a double blow from fewer new orders and a sharp depletion of existing orders.
So far, the trade war has not had any significant impact on China’s trade and broad economy. Manufacturers’ front-loading may be partly responsible.
China’s exports rose 14.5 percent in September from a year earlier, accelerating from a 9.8 percent rise in August. Meanwhile, its trade surplus with the U.S., its biggest export market, widened to a record $34 billion last month.
In Guangdong, China’s export manufacturing hub, the economy expanded 6.9 percent during the first three quarters of 2018 from a year ago, or slightly higher than the nationwide growth rate of 6.7 percent for the period.
Guangdong’s exports posted a modest rise of 0.4 percent in the first nine months of the year, rebounding from a 3.3 percent decline in the first half, implying strong third-quarter gains.
The stronger exports figure was supported by activity at factories like Seagull’s. The question is what will these factories do once those orders have been completed, particularly if U.S. clients reduce or even stop orders because of the extra tariff costs.
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