How are Chinese manufacturers coping with Trump's tariffs?

Summary

Marketplace Morning Report: How Are Chinese Manufacturers Coping with Trump's Tariffs?
Release Date: April 22, 2025
Host: David Brancaccio (Marketplace)

Introduction

In this episode of the Marketplace Morning Report, hosted by Nick Qureshi from the BBC World Service, the focus is on the repercussions of President Trump's tariffs on Chinese goods and how Chinese manufacturers are navigating these challenging economic waters. The report delves into the experiences of manufacturers at the Canton Fair, examines broader economic impacts, and explores specific sectors affected by the tariffs.

Impact of Tariffs on Chinese Manufacturers

Canton Fair Overview
Laura Bicker, the BBC correspondent, provides an on-the-ground perspective from the Canton Fair in China's manufacturing hub. She highlights the vastness of the fair and the confusion among traders amidst the ongoing trade tensions.

[02:07] Laura Bicker: "We're heading into the Canton Fair, but this place has so many halls that even we're getting lost in having to ask for directions. Are we going the right way?"
[02:22] Laura Bicker: "The whole fair takes up a space of around 200 football fields, so that gives you an idea of the size of this."

Manufacturer Responses
Manufacturers are grappling with the uncertainty and financial strain caused by the tariffs. Many are holding inventory in warehouses, anticipating potential policy changes.

[03:04] Lionel Shoe, Sorbo Technology: "For US market, we have more than 15%, 50 or 50,000 5 00% more than 5, 0% in the US market. So, so, so hard for us because. Crazy Trump. This is crazy, crazy."
[03:23] Lionel Shoe: "I mean we will go back in two months because I believe Trump will change his mind."
[03:34] Stephen: "Yeah."

Warehouse Stockpiling
Manufacturers like Amy from the Guangdong Sailing Trade Company have ceased production for the US market, leaving their products stranded in warehouses.

[03:50] Amy: "Not good. Not bad."
[03:57] Amy: "No."
[04:00] Amy: "All the products are in the warehouse? Yeah."
[04:09] Amy: "Maybe."

Laura Bicker summarizes the widespread impact:

[04:11] Laura Bicker: "Most of the stallholders we spoke to who export to America say all their exports are in warehouses waiting to be shipped. There's a long way to go before China and the US resolve this dispute and that will leave many, many manufacturers here in Guangdong in limbo in China."

Broader Economic Implications

Corporate Strategies Amid Tariffs
Swiss pharmaceutical giant Roche is taking significant steps to mitigate the impact of tariffs by investing heavily in the US market.

[04:37] Nick Qureshi: "Swiss drugs giant Roche is investing $50 billion in the US over five years to avoid trade tariffs. It's expected to create 12,000 jobs."

Market Reactions
The political tensions have also influenced financial markets globally, with stock indices reacting to policy changes and trade uncertainty.

[04:37] Nick Qureshi: "Donald Trump's labeling of the Federal Reserve Chair Jerome Powell as a major loser has had consequences after a sell-off in the U.S. European shares edged lower in early trade while Asian stocks battled to hold ground. Gold, meanwhile, has surged to another record of three and a half thousand dollars an ounce as investors seek a safe haven."

Diplomatic Efforts
Vice President J.D. Vance's visit to India underscores ongoing diplomatic efforts to balance trade relationships amidst rising tariffs.

[04:37] Nick Qureshi: "The Vice President, J.D. Vance is in India this week. He's been talking trade with Prime Minister Narendra Modi as higher US tariffs loom. India is a major trading partner with the US and it also plays a key role in the international diamond trade which has been buffeted by Donald Trump's so-called reciprocal tariff plan."

Impact on the Diamond Industry

Global Diamond Trade Dynamics
The tariff-induced uncertainty significantly affects the global diamond industry, heavily reliant on the US market.

Expert Insight with Paul Zimnicki
Diamond industry analyst Paul Zimnicki discusses the intricacies of the diamond trade and the specific impacts of US tariffs.

[05:39] Stephen: "I guess I would start by noting that the diamond trade is an especially global industry. Diamonds are primarily mined in Sub Saharan Africa, Russia, Canada. They're traded in hubs like Belgium, the UAE, Hong Kong, and they're cut and polished in India. And then they're primarily consumed by markets like America, Europe, Japan. That said, as far as the tariffs are concerned, the source origin of a diamond is considered where it was transformed, that is cut and polished. And again, the large majority of this takes place in India. So the US Tariff on Indian goods is what's key here. And that initial reciprocal tariff, if you will, was 26%. It's now 10% until early July. That same base level for pretty much every country other than China. And the tariff is at the wholesale level. So for natural diamonds at least, it's quite consequential."

Market Sensitivity
The tariffs have led to a significant pause in the diamond trade, with hesitancy prevailing until more clarity is achieved.

[06:35] Paul Zimnicki: "For those customers who are still planning to go out to buy diamonds, what does that look like for them? How does this feed through into prices and supply and demand?"
[06:43] Stephen: "Like you say, diamonds already in the US are theoretically more valuable now because again, they have the cost of that tariff already embedded in them. What I could say is when the initial reciprocal tariffs were announced, the diamond trade essentially froze up. And then the following week when the pause was initiated, you started to see some flow open back up. But there's going to continue to be hesitancy until we have more clarity, and this may continue for at least the next three months."

Market Share Impact
The US remains the dominant market for diamonds, making the tariffs particularly impactful.

[07:14] Paul Zimnicki: "Can you give us an idea of how big a part of the diamond market the US is and therefore how consequential these tariffs are?"
[07:23] Stephen: "I estimate that upwards of 55% of total global diamond jewelry is consumed in the U.S. China has been the second largest consumer of diamonds. However, giving what they're going through on what's. On a more macro level, luxury consumption in China has fallen quite dramatically. Last year, I estimated diamond consumption in China was down 50% year over year. India has actually stepped up and is now the second largest consumer of diamonds. But again, America is still by far the primary consumer. So it's kind of the key to this industry."

Conclusion of Interview
Paul Zimnicki emphasizes the critical role of the US market in the global diamond industry, underscoring the significant impact of the tariffs.

[07:57] Paul Zimnicki: "Paul Zimnicki, diamond industry analyst based in New York, thanks very much for joining us on Marketplace."

Diplomatic Developments

US-India Trade Talks
Vice President J.D. Vance's engagement with India highlights strategic efforts to strengthen trade partnerships and potentially alleviate some tariff pressures through diversification.

[08:04] Nick Qureshi: "Let me just tell you, J.D. Vance is on his feet right now giving a speech in Jaipur. He says India and the US have much to offer one another."

Closing Remarks

Nick Qureshi wraps up the report, emphasizing the ongoing challenges faced by Chinese manufacturers and the broader economic implications of the tariffs.

[08:04] Nick Qureshi: "This has been the Marketplace Morning Report. I'm Nick Qureshi. Thanks for listening."

Key Takeaways

Manufacturing Struggles: Chinese manufacturers are experiencing significant disruptions due to high tariffs, leading to stockpiling and halted production for US exports.
Economic Ripple Effects: The tariffs have broader implications, affecting investment decisions, market stability, and global trade dynamics.
Diamond Industry Impact: The global diamond trade is particularly vulnerable, with the US market's dominance making tariffs highly consequential.
Diplomatic Efforts: US diplomatic engagements, especially with India, aim to mitigate some of the negative impacts and explore alternative trade opportunities.

This episode of the Marketplace Morning Report provides a comprehensive analysis of the challenges faced by Chinese manufacturers under the strain of Trump's tariffs, highlighting both the immediate effects on businesses and the broader economic and diplomatic efforts to navigate the trade tensions.