Despite U.S. President Donald Trump’s pronouncements of victory following the weekend agreement with China to lower the previously exorbitant tariffs on their respective goods, businesses within China are adopting a more reserved stance, choosing to observe and evaluate the temporary nature of the accord before fully reacting.
While U.S. President Donald Trump declared a significant victory following a weekend agreement with China aimed at de-escalating their protracted trade dispute through a reduction in the substantial tariffs imposed on each other’s goods, businesses within China are adopting a more circumspect “wait and see” approach to this temporary reprieve. The initial enthusiasm witnessed in the financial markets has yet to fully translate into unwavering confidence among Chinese enterprises, who remain wary of potential future shifts in policy.
The agreement reached between the two economic powerhouses involved a reciprocal lowering of tariffs that had been implemented in April. The United States agreed to reduce the 145% tariff that President Trump had unilaterally imposed the previous month to a level of 30%. In response, China committed to lowering its tariff rate on U.S. goods from 125% to 10%. These revised, lower tariff rates officially came into effect on Wednesday, offering a tangible, albeit potentially temporary, easing of the trade tensions that have plagued the global economy.
U.S. Treasury Secretary Scott Bessent, in announcing the tariff reductions over the weekend in Geneva, emphasized the U.S.’s desire for trade, stating, “We do want trade.” This sentiment contributed to a positive reaction in the financial markets, which rebounded to levels preceding President Trump’s April tariff hikes, suggesting investor optimism regarding a potential de-escalation of the trade war. However, this market enthusiasm is not universally shared by business owners on the ground in China, who are acutely aware of the volatility and unpredictability that have characterized the trade relationship.
Despite the cautious optimism, some businesses in China are already taking tentative steps to capitalize on the reduced tariffs. For instance, a kitchen utensil factory located in the manufacturing hub of southern Guangdong province reportedly reactivated at least four orders from their American clients on Tuesday, immediately following the announcement of the tariff pause. Margaret Zhuang, a salesperson for the factory, expressed a degree of surprise at the extent of the tariff reduction, stating, “We thought the negotiation would bring the tariffs down a bit, but didn’t expect it would be so much.”
Looking ahead, both the United States and China have indicated their intention to commence negotiations aimed at establishing a more comprehensive and long-term trade agreement. This prospect offers a glimmer of hope for a sustained period of reduced trade friction.
However, the prevailing sentiment among many Chinese businesses remains one of cautious optimism, tinged with a significant degree of uncertainty. Kahlee Yu, the sales manager of Yangjiang Hongnan Industry and Trade Company, another kitchen utensil manufacturer, acknowledged that he was re-establishing contact with American customers. While expressing a mild positive outlook on the potential for a trade deal, he also highlighted the inherent risk, stating, “We’re a little bit optimistic about the trade deal between the two sides. But it is still possible the tariff policies will change again, resulting in no orders from our American clients.” This cautious stance underscores the lingering apprehension about the durability of the current agreement.
Furthermore, even with the immediate relief provided by the tariff reduction, the economic damage inflicted by the tariffs announced in April has already had a tangible impact on Chinese businesses. Margaret Zhuang from the Guangdong utensil factory noted a decline in order volumes. Currently, their production schedule only extends to June, a significant reduction compared to earlier in the year, before the escalation of President Trump’s trade policies, when they had orders stretching into August. This reduction in order backlog highlights the real-world consequences of the trade tensions and the erosion of business confidence.
The uncertainty surrounding the long-term trajectory of the trade relationship is also deterring companies from making new investments. Kelvin Liao, the sales director at Action Composites, a manufacturer of carbon fiber auto parts based in Dongguan, a major industrial city in Guangdong, revealed that his company had initially planned to purchase land to construct a new factory. However, due to the prevailing tariff situation and the associated economic uncertainty, they opted instead to lease property, demonstrating a reluctance to commit to significant capital expenditures in the current climate.
Mr. Liao articulated the prevailing skepticism among Chinese businesses, stating, “It is good to reach a trade deal between the two countries. But people have already lost confidence in Trump, and we will take a wait-and-see attitude.” He further expressed a widely held concern that the current trade deal might merely be a temporary pause, with the underlying objective of the U.S. being to impede China’s economic and technological development. This perspective underscores a deep-seated mistrust and a belief that the fundamental issues driving the trade conflict remain unresolved.
It is also crucial to note that the current tariff reductions do not apply uniformly across all industries. Hong Kong businessman Danny Lau, who owns an aluminum-coating factory, pointed out that his company continues to face a substantial tariff burden of approximately 75% resulting from levies imposed by the U.S. at various points since 2018. Despite the fact that his specific industry is not covered by the recent agreement, Mr. Lau welcomed the news and indicated his intention to reach out to existing American clients to gauge their perspectives on the development. He expressed hope that the ongoing talks would yield positive outcomes for a broader range of industries during the 90-day negotiation period.
In response to the high tariffs imposed in April, some Chinese businesses had already begun to shift their focus towards exporting to alternative international markets. Analysts had previously suggested that the escalating tariffs could incentivize Chinese companies to diversify their supply chains and even relocate a portion of their manufacturing capacity to other countries, including the United States, to circumvent the levies.
Kelvin Liao of Action Composites confirmed that his company had already established a manufacturing facility in Vietnam, from which products were being directly exported to the U.S., effectively bypassing some of the tariffs. He also expressed a degree of confidence in China’s manufacturing capabilities, stating, “We don’t believe that the US has the ability to produce the products like ours with lower costs. We will not give up on the US market.” This suggests a resilience and a belief among some Chinese manufacturers that their competitive advantages will allow them to remain significant players in the U.S. market despite the ongoing trade tensions.
In conclusion, while the temporary tariff reduction agreed upon by the U.S. and China has been met with cautious optimism and some immediate business activity, a significant degree of uncertainty and skepticism persists among Chinese businesses. The memory of previous trade escalations and a lack of complete confidence in the long-term intentions of the U.S. administration are prompting a measured “wait and see” approach. The true impact of this temporary truce will depend on the success of the upcoming negotiations for a more enduring trade agreement and whether it can truly restore confidence and stability to the crucial economic relationship between the two nations.
