From baby wipes to aluminum panels, Hong Kong businesses are captured by US-China trade waste
Hong Kong business owner Itay Sharon breathed a sigh of relief this week when he heard that the United States and China had moved the trade war and temporarily reduced the punishment tariffs between them.
Under the agreement, the United States will temporarily reduce its tariffs on Chinese goods from 145% to 30%, while China will collect its collection of imports on U.S. goods starting Wednesday.
The 43-year-old Canadian Israeli runs the consumer brand Eco Wave, which produces items such as Bamboo Baby wipes and compostable diaper bags. These products are produced in factories in mainland China and sold on Amazon in the United States and the United Kingdom
200,000 compost diaper bags shipped from a factory in Henan Province in China will arrive at the port of Los Angeles on May 13, and the salon has been preparing to pay a 125% tariff on freight. He now wants to pay a 30% tariff on Chinese imports, but is not sure which fee he will pay.
When his “happy” tariff rate dropped, Sharon said he still had to transfer the extra fees to U.S. consumers.
He told CBC News, “I didn’t absorb its profits.”
The cycle of selling Tit-Tat tariffs between the world's two largest economies swept the financial markets. It also brings uncertainty to businesses relying on the U.S. market, which does not know what level of tariffs will reach within three months.
Some Hong Kong companies have hubs to produce products in another location. As they wait to see the tariff levels will eventually land, others who rely on the large U.S. market continue to step on the water because of concerns that it may cut employee cuts, and tariffs are getting more and more.
“You have to adapt or be swept away”
After Donald Trump's first term, many Hong Kong companies opened factories outside mainland China to circumvent U.S. tariffs and hedge the impact of geopolitical tensions. The company is called the “China Plus One” strategy, diversifying its production lines into places like Vietnam and Cambodia, which help these countries become manufacturing powerhouses.
Last year, exports to the United States contributed 30% of Vietnam's GDP and 29% of Cambodia's GDP.
During his second term in office, President Donald Trump announced a 10% tariff on U.S. trading partners and so-called reciprocity taxes, up to 46% on Vietnam, up to 46% on Vietnam and up to 46% on Cambodia before the 90-day pause was announced on April 9.
Trump said his aim was to correct unfair trade practices, believing that many countries impose higher tariffs on U.S. goods than the U.S. on their goods, thus creating an imbalance.
Salon immediately booked a flight to Ho Chi Minh City after Trump announced a 145% import tax on Chinese products last month. He traveled regularly to Vietnam when he worked for his father's export business for 15 years, and he was familiar with the country.
Salon has been in touch with a factory there since last year as he has been thinking about diversifying his supply chain and decided to make his bamboo baby wipes from there to reach triple-digit tariffs.
His first shipment of 20,000 bags of bamboo wipes will be shipped next week.
Now, Sharon said the tariffs have now been reduced to 30% of Chinese imports and he will return to manufacture the products in a factory in China, which he has used for three years.
While the tariff rate is still higher than 10% in Vietnam, Sharon said the manufacturing price of baby wipes made in China is still cheaper, as the factory provides him with more favorable payment terms.
He said that it was not clear what trade policies would happen next, and moving production lines was challenging.
“It's very difficult. You have to adapt, and if you don't, you'll be swept away.”
Companies calculate costs
Danny Lau, a Hong Kong entrepreneur who runs KAM PIN Industrial, reads the news twice a day to look for any signs of a trade war between the world's two largest economies.
When asked about his thoughts about Trump, Law replied: “It's hard to predict. This guy is unexpected. He can do anything.”
Lao's business was founded by his parents in 1960 and opened a factory in Dongguan, mainland China, to manufacture aluminum-coated panels for buildings in Hong Kong and mainland China.
The United States accounts for one-third of KAM PIN Industrial's business – its products run from customers including Tech Giants Amazon and Google.
President Trump raises tariffs on imported aluminum and steel to 25%. Liu said that in addition to existing taxes during Trump's first term, his U.S. products are tariffed at about 75%.
Trump said the 90-day pause in tariffs on China does not include sector tariffs on cars, steel, aluminum and potential drugs.
Law said he is checking what the import tax rate for his products is and will contact U.S. customers to see if he has a chance to get U.S. projects in the third and fourth quarters.
He expects the U.S. to receive $5 million from U.S. orders in the second half of the year, but U.S. orders have been reduced or shelved until the two Big Giants [the U.S. and China] …can be settled and responsibilities are reduced. ”
“If we don't have enough orders, we have to do layoffs and sign the entire business, including using less space in our offices and production facilities,” he warned. “It's a bad feeling. It's unexpected.”
Lau is looking for new markets, such as in the Middle East, but says it's hard to replace the big U.S. market, which took him four years to break in.
This week's temporary trade truce gave him some hope. But all he can do is wait until an agreement is reached between the United States and China.
“[The outlook is] “It's a little bright, but not completely clear. Looking forward to the sunny day,” said Law.
Uncertainty remains
As the clock ticked down to whether the U.S. and China could reach a final deal, economist Simon Lee warned that the problems that sparked a trade war remained unsolvable, such as the U.S. demanded that Beijing destroy trafficking of chemicals made by fentanyl.
“this [tariff] “The evacuation is only temporary. Tariffs on China are still higher than before,” said Lee, who teaches at the Chinese University of Hong Kong.
According to data released by China's Customs Administration on May 9, with trade between the world's two largest economies plummeting, China's exports to the United States fell by 21% year on year as tariffs hit.
Some Canadian manufacturers are facing catastrophic cost increases due to Canada’s own retaliatory counter-investigation of the United States, with some owners saying federal aid may not be enough to keep them alive.
Alan Murphy, CEO of supply chain research firm SEA-Intelligence, said China-to-U.S. sales fell 30% to 50% with bookings cancelled, according to anecdotal evidence from shipping companies and freight forwarders.
“As the 145% tariff on tariffs has at least delayed the massive implosion of China's exports we expect,” he said.
Murphy added that some goods will start moving now, but he didn't expect a big rebound in demand because even the 30% tariff is still “quite punishment”.
For U.S. importers, the question is whether tariffs fall or rise in 30% in 90 days, Murphy said. No one knows.
“The uncertainty here is killing everyone,” he said.
