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China's key weapon in global trade war? Its 1.4 billion consumers

Bloomberg/ 11 Aug 18 | 12:02 AM

Taizhou Tianhe Aquatic Products’ more than 1,000 workers process 10,000 tons a year of freshwater crayfish, frozen squid, dory fillets, and other seafood for sale to the US, Europe, and Australia Photo: Bloomberg

On July 11, Zhuo Peihui learned the profit margins on the wooden furniture he’s been selling to the US for 13 years were about to evaporate. That’s because the dresser drawers and dining tables made by the more than 100 workers at his factory in the Chinese province of Guangdong had landed on Donald Trump’s latest tariff hit list.

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Trump is betting that punishing penalties on Chinese industry will force Beijing to end trade practices his administration says are unfair. But China has at least one powerful strategy for limiting the fallout of the levies: getting the nation’s 1.4 billion people, especially its swelling ranks of middle-class shoppers, to spend more like Americans.

China furniture exporters sold $29.2 billion in goods to the US last year. The $200 billion round of tariff proposals will have the biggest impact on their industry, according to Deutsche Bank AG. They face levies of 10 per cent or even 25 per cent. That’s spurred Zhuo and other furniture makers to seek sales closer to home. “Although the domestic market is new to us and competition is very fierce, at least the demand is here," he says. “The market is huge, and customers are paying more for good products."

ALSO READ: US-China trade war most likely to end with Donald Trump's victory

With trade tensions between the US and China seeming to worsen by the day, mainland companies selling everything from handbags to fresh food to Christmas lights are boosting their attempts to cultivate local demand. Take Taizhou Tianhe Aquatic Products  From its base in Zhejiang province in eastern China, more than 1,000 workers process 10,000 tons a year of freshwater crayfish, frozen squid, dory fillets, and other seafood for sale to the US, Europe, and Australia.

Many of those products are facing new levies in the US; the almost 200—page list of targeted items includes dozens of varieties of seafood, with the penalties due to take effect after public consultations end on Sept. 6. Luckily for Tianhe Aquatic, Chinese millennials are having a crustacean fixation. Demand from urbanites in their 20s and 30s helped the economic value of the crayfish industry climb 83 per cent last year even as US exports dropped, according to a June government report.

“Consumers in China care more about the quality of food and consider eating food that is popular in the US and Europe to be fashionable," says sales representative Doris Chen. Tianhe can’t keep up with local demand, even though it’s charging more and boosting profit margins, she says. “We can drop the US market if we want."

China’s oil tariff move a relief for Sinopec

 

China's decision to remove crude oil from its latest tariff list in an escalating trade war with the United States was a relief to state oil firms prompted by a strong lobbying effort by main importer the Sinopec Group, Beijing-based oil sources said.

Dropping crude oil from the final list on $16 billion in US goods anno-unced late on Wednesday under-scores the growing importance of the US as a key global producer and a critical supply source as China, the world's top oil importer, seeks to diversify supplies.

Removing crude imports, worth roughly $8 billion based on Sinop-ec’s earlier forecast of 300,000 bar-rels per day (bpd) in annual import-s, also gives Beijing room to mano-euvre in future negotiations with Washington, especially as it may soon lose some Iranian oil shipm-ents due to reimposed US sanctions.

“Sinopec did a lot of lobbying work with the government," said one person with direct knowledge of the state refiner’s lobbying of various agencies such as the Ministry of Fin-ance and the Ministry of Commerce. 

-Reuters

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