US companies feel China squeeze as new Trump tariffs loom

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American companies are racing to negotiate price cuts from Chinese suppliers, shift production and increase prices for US consumers as executives grapple with President Donald Trump’s additional 20 per cent tariffs on Chinese goods and prepare themselves for more.

Trump campaigned on a promise of 60 per cent duties on Chinese goods, and the White House may impose additional levies on imports from China on April 2, when it unveils “reciprocal tariffs” on countries around the world.

It is unclear how high tariffs could go, but US and Chinese companies are looking for workarounds and rethinking their supply chains to lessen reliance on China.

“Obtaining cost concessions from our vendors” was top of the list, Jeff Howie, chief financial officer at home furnishings retailer Williams-Sonoma, told investors this month.

Howie said the company would continue to shift sourcing out of China, having already reduced Chinese-made goods from 50 per cent of inventory in 2018 to 23 per cent. He said they would also expand production in the US and were “passing on targeted price increases to our customers”.

The Pottery Barn owner is one of several US retailers taking action. Costco and Walmart have already demanded price cuts from suppliers, with the latter hauled in by Chinese authorities to explain their thinking.

Demands for price cuts, along with moves to shift production elsewhere, underscore how large companies have built greater resilience and flexibility into their supply chains following Trump’s first trade war and the Covid-19 pandemic.

US and Chinese companies said the latest tariffs had accelerated a production diversification drive that began during Trump’s first term.

“The 2017 round of tariffs certainly created action, and we’re in a different position than we were back then,” Richard McPhail, chief financial officer of home improvement giant Home Depot, told the Financial Times.

Home Depot chief Ted Decker added that many of its suppliers had shifted some manufacturing out of China over the past seven years. About a third went to south-east Asia, a third to Mexico and a third to the US, he said.

Elegant Home-Tech, a Chinese manufacturer that ships vinyl flooring to the US, including to Home Depot warehouses, began building a factory in Mexico in 2023 after Trump’s first bout of tariffs.

The $60mn factory will start shipping flooring to the US this summer, said a manager at the company, asking not to be named. The group hopes it will not be caught in the crossfire of US-Mexico trade tensions.

“Everything is uncertain,” said the manager. “This is difficult for manufacturers, for importers and for retailers.”

Elegant Home-Tech is in negotiations with its customers over how to share the added tariff burden, which now stands at 50 per cent. This includes 25 per cent from Trump’s first term and the normal 5 per cent rate.

“Our profit is very tiny,” said the manager. “It’s impossible for us to afford all the tariff costs. We will likely split the costs. We think the [in-store] price will increase, too.”

Chinese pet-food maker Petpal Pet Nutrition Technology told investors its factories in Vietnam and Cambodia “could now fully take over orders from American customers” and were “not affected by tariffs”.

Similarly, Chinese battery-powered tools manufacturer Globe said its “Vietnam factory has basically achieved full coverage of exports to the United States”.

The problem for companies shifting their production elsewhere is they are not sure who will be hit by tariffs next. Trump has said the only surefire way to avoid tariffs is to move production to the US.

“Nobody knows what tariffs are going to be put on, where, when or what,” said Jay Schottenstein, chief executive of clothing brand American Eagle. “We don’t know what’s going to be on Vietnam, we don’t know China, we don’t know India. We don’t know Bangladesh.”

“We’re not going to be jumping all over the place until we know exactly what the story is,” he told analysts.

Still, American Eagle executives said they had already spent months preparing and planned to reduce China sourcing from the current “high teens” percentage to “single digits” by the second half of the year.

For retailers, particularly those heavily reliant on Chinese manufacturing, the effects will be more damaging.

Discount retailer Five Below, which sources about 60 per cent of its products from China, expects a percentage point hit to its gross margin for the year despite its best efforts to mitigate the impact.

Kristy Chipman, Five Below’s finance chief, told analysts the group was looking to renegotiate prices with suppliers, shift production and raise some in-store prices.

“The breadth and magnitude of the recently announced tariffs are significant,” she said.

Additional reporting by Nian Liu and Wenjie Ding in Beijing and Thomas Hale in Shanghai