What U.S. tariffs are feeling like on the ground in China

Summary

Marketplace Morning Report: What U.S. Tariffs Are Feeling Like on the Ground in China

Release Date: March 4, 2025

In this episode of the Marketplace Morning Report, hosts delve into the tangible effects of recent U.S. tariffs on Chinese manufacturers, exploring the ripple effects on businesses and the broader economic landscape. Additionally, the report touches on internal federal workforce initiatives aimed at enhancing productivity amidst evolving labor market dynamics.

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Introduction to U.S. Tariffs and Their Immediate Impact

The episode opens with Sabri Ben outlining the recent imposition of significant tariffs by the U.S. government. Specifically, a 25% import tax has been levied on most goods imported from Canada and Mexico, while tariffs on Chinese imports have doubled to 20%. These measures, executed under President Donald Trump's directives, have prompted retaliatory tariffs from the affected countries.

"A 25% import tax on almost everything we buy from Canada and Mexico. New tariffs on China doubled to 20%. These all start today per President Donald Trump's orders."
— Sabri Ben [01:01]

Economists predict that these tariffs will slow economic growth in the United States and contribute to short-term inflationary pressures. As trading partners respond, businesses are forced to adapt swiftly to the new economic realities.

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Ground Realities: Chinese Manufacturers Navigate Tariffs

Jennifer Pack, Marketplace’s China correspondent, provides an on-the-ground perspective from a trade show in Shanghai, interviewing various Chinese manufacturers grappling with the new tariffs.

Challenges Faced by Manufacturers

Manufacturers across different sectors are experiencing heightened operational pressures:

• Hair Accessories Sector:
  Xie Yanjuan, a manufacturer specializing in hair clips, revealed that an extra 10% tariff had been imposed during the initial phase of the trade war. Despite managing to sustain operations by lowering prices, Yanjuan notes the strain of continuous tariff increases.

  "Our profit margins were better during the first trade war, but with round after round of additional tariffs, it's kind of hard to sustain a business."
  — Xie Yanjuan [01:40]

• Rubber Boots Manufacturing:
  Alex Tu from Hangzhou Hausi Shoes discusses the rising raw material costs and the subsequent pressure to maintain mid to high-range pricing for products catering to clients like Disney and Walmart.

  "Our clients asked us to lower the price because their costs have increased, but we're doing mid to high range rubber boots. The raw material cost is rising, so our prices are under a lot of pressure."
  — Alex Tu [02:20]

• Paper Napkin Production:
  Huang Shouhao, a manufacturer of paper napkins, shares his strategy of absorbing additional tariffs without passing the burden onto clients. Despite facing higher costs, his products continue to reach the U.S. market indirectly.

  "His products are still getting to the U.S. but in an indirect way."
  — Huang Shouhao [02:31]

Adaptation Strategies

To mitigate the impact of tariffs, Chinese exporters are employing various strategies:

• Rerouting Through Vietnam:
  Some manufacturers are increasing sales to Vietnam, only to export the goods to the U.S. from there, effectively masking the products' origins to evade tariffs.

  "We've seen sales to Vietnam increase and then they are actually exported to the US they're just rerouting through Vietnam."
  — Huang Shouhao [02:45]

• Supply Chain Control:
  Li Linjing, sales manager at Shanxi Longstar, highlights the benefit of controlling the entire supply chain, allowing the company to maintain low costs and adjust prices accordingly.

  "We keep our costs down by controlling our entire supply chain. We should lower our prices accordingly. Our factory produces everything from raw materials to the finished tree, so we're fine for now."
  — Li Linjing [02:54]

• Diversification and Competitiveness:
  Sophia Li, head of E-Commerce consultancy group Zhi Mao Bang, emphasizes the importance of enhancing product competitiveness and exploring alternative markets to mitigate risks associated with U.S. tariffs.

  "We should prepare in two ways, increase the competitiveness of our products and explore other markets to diversify risks. Americans, she says, still buy more than any consumers around the world."
  — Sophia Li [03:30]

E-Commerce Exemptions and Potential Changes

Currently, e-commerce vendors benefit from an exemption for products priced at $800 or less. However, Trump has indicated plans to close this loophole, though such measures are presently on hold. This potential policy shift could further influence the strategies of Chinese exporters and American importers alike.

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Additional Segment: Federal Workforce Productivity Initiatives

Transitioning from international trade, the episode explores internal federal workforce changes spearheaded by Elon Musk's initiative to streamline the federal workforce. These changes involve increased accountability measures, such as requiring government employees to report their weekly activities.

Adam Grant, an organizational psychologist from the University of Pennsylvania's Wharton School, provides insights into these initiatives:

• Worker Leverage and Productivity:
  Grant discusses the perceived loss of leverage among workers and the actual data showing stable remote work trends.

  "There has been no meaningful change in the number of days that people are showing up versus working remotely. In the past couple of years, it seems that we've stabilized with around a third of workdays happening from anywhere, which is a huge win for employees."
  — Adam Grant [04:51]

• Effectiveness of Monitoring Strategies:
  Highlighting the ineffectiveness of monitoring as a productivity tool, Grant references a meta-analysis of 94 studies indicating that surveillance does not enhance performance and may, in fact, increase stress and decrease trust.

  "There was a great meta analysis, a study of studies recently, 94 studies in total, showing that monitoring people's performance fails to improve it. If people know they're being observed, they do not do any better. And meanwhile, they're more stressed, they're more dissatisfied, and especially they're less likely to trust their managers."
  — Adam Grant [06:13]

• Optimal Motivation Strategies:
  Grant advocates for fostering autonomy, mastery, belonging, and purpose among employees, coupled with appropriate accountability. He distinguishes between being demanding (setting high standards with tough love) and being demeaning (insulting or belittling employees), emphasizing the former as a more effective motivational approach.

  "People do their best work when they're given a chance to pursue autonomy, mastery, belonging, and purpose. But of course, they have to be coupled with accountability."
  — Adam Grant [06:49]

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Conclusion

This episode of the Marketplace Morning Report provides a comprehensive analysis of the real-world implications of U.S. tariffs on Chinese manufacturers, illustrating the adaptive strategies employed by businesses to navigate the increased trade barriers. Additionally, the discussion with Adam Grant sheds light on internal government workforce initiatives, offering a broader perspective on productivity and employee motivation in the current economic climate.

For listeners seeking an in-depth understanding of the ongoing trade dynamics and their multifaceted impacts, this episode serves as an invaluable resource.

Transcript

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[Sabri Ben]

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[Jennifer Pack]

The tariffs are here. From Marketplace I'm Sabri Ben, ashore in for David Brancaccio. A 25% import tax on almost everything we buy from Canada and Mexico. New tariffs on China doubled to 20%. These all start today per President Donald Trump's orders. All three countries there have announced retaliatory tariffs. Economists believe this will slow economic growth in the US and lead, at least in the short term, to more inflation. Meanwhile, trading partners are adapting. Our China correspondent Jennifer Pack, spoke to some Chinese manufacturers at an import export trade show in Shanghai and sent this report.

[Cyndi Lauper]

This annual import and export trade show in Shanghai draws around 4,000 exhibitors. Hair clips in red, white and blue, the colors of the American flag, hang at a booth. Manufacturer Xie Yanjuan says hair accessories were slapped with an extra 10% tariff under Donald Trump's first term. Her business survived by lowering prices. Our profit margins were better during the first trade war, but with round after round of additional tariffs, it's kind of hard to sustain a business. Meantime, costs are going up, says Alex Tu with Hangzhou Hausi Shoes. The firm manufactures rubber boots for the likes of Disney and Walmart.

[Sabri Ben]

Our clients asked us to lower the price because their costs have increased, but we're doing mid to high range rubber boots. The raw material cost is rising, so our prices are under a lot of pressure.

[Cyndi Lauper]

Paper napkin manufacturer Huang Shouhao says his clients also asked him to share the burden of additional tariffs, but he refused. He says his products are still getting to the U.S. but in an indirect way.

[Sabri Ben]

We've seen sales to Vietnam increase and then they are actually exported to the US they're just rerouting through Vietnam.

[Cyndi Lauper]

This way, Chinese exporters and American importers try to make amass the product's origins and dodge US Tariffs. Christmas tree manufacturer Shanxi Longstar keeps its costs down by controlling its entire supply chain, says sales manager Li Linjing. We'll lower our prices accordingly. Our factory produces everything from raw materials to the finished tree, so we're fine for now. E Commerce vendors are safe from Trump's tariffs because of an exemption for all products, $800 or less. Trump says he will close that loophole, though that plan is currently on hold. E Commerce consultancy group Zhi Mao Bang's boss Sophia Li, says Chinese companies need to be adaptable. We should prepare in two ways, increase the competitiveness of our products and explore other markets to diversify risks. Xi doesn't recommend quitting the US Market, though. Americans, she says, still buy more than any consumers around the world. In Shanghai, I'm Jennifer Pack for Marketplace.

[Jennifer Pack]

Government workers are still receiving emails asking them to list what they did last week at work. Part of the Elon Musk led initiative to make the federal workforce leaner and more efficient. This project raises questions about what productivity looks like and the power all workers have at this moment, where the labor market isn't as hot as it used to be and there's significant new economic uncertainty. Adam Grant joins us to talk about it. He's an organizational psychologist at the University of Pennsylvania's Wharton School. Adam, welcome.

[Adam Grant]

Great to be here.

[Jennifer Pack]

How much leverage have workers lost in the private sector side?

[Adam Grant]

On its face, if you follow the media headlines, it seems like workers have lost a lot of leverage because we're not talking about quiet quitting anymore as a major concern. We're seeing a lot of headlines about return to office mandates. But if you actually look at the data just on coming to the office, for example, the trends are completely flat. There has been no meaningful change in the number of days that people are showing up versus working remotely. In the past couple of years, it seems that we've stabilized with around a third of workdays happening from anywhere, which is a huge win for employees.

[Jennifer Pack]

The things that we've seen Elon Musk do the you know these emails defending your employment, Are these like tried and true strategies employed by corporate America normally, or are these just things Elon Musk did one time at Twitter?

[Adam Grant]

It's hard to say. I know of no evidence that these are effective strategies. Some strategies that may be common in startups and may be popular in startups, are being overgeneralized to a large bureaucracy. You know, I've seen this a lot when. When we see leaders leave Silicon Valley and enter the behemoth of the US Government, they often find themselves hammering away at what they discover are screws. And that doesn't work very well.

[Jennifer Pack]

Is that a constant or common mindset in corporate America? I mean, is there this idea that people are generally not being productive enough and you gotta fix it through terror?

[Adam Grant]

It's more common than I would like it to be. And I think the response to that by many leaders and managers is to say, well, we've gotta monitor people. And yet the evidence tells a very different story. There was a great meta analysis, a study of studies recently, 94 studies in total, showing that monitoring people's performance fails to improve it. That if people know they're being observed, they do not do any better. And meanwhile, they're more stressed, they're more dissatisfied, and especially they're less likely to trust their managers.

[Jennifer Pack]

Well, what is the best way to motivate and specifically to improve productivity?

[Adam Grant]

I think the research on motivation is pretty clear that people do their best work when they're given a chance to pursue autonomy, mastery, belonging, and purpose. But of course, they have to be coupled with accountability. And I think what a lot of leaders don't understand is when it comes to holding people accountable, there's a huge difference between being demanding and being demeaning. Being demanding is setting high standards and giving tough love. Being demeaning is insulting people, being uncivil, unkind, cruel, belittling, bullying. And it's the former behavior, not the latter, that tends to bring out the best in people.

[Jennifer Pack]

Adam Grant with the University of Pennsylvania's Wharton School. His latest book is Think Again. The Power of Knowing what you don't know. Thank you, Adam, so much.

[Adam Grant]

Thanks, Sabri.

[Jennifer Pack]

In New York, I'm Sabri Benishore with the Marketplace Morning report from APM American Public Media.