As Asian manufacturing powerhouses try to stop penalizing US tariffs ahead of Donald Trump’s July 9 deadline, exporters across the region are rushing to order, lowering prices, looking for new customers, and rethinking their relationship with the world’s largest economy.
Trump’s blanket 10% tariffs have already hurt countries that rely on exports to the US for growth, employment and forex. and higher fees the US President vowed to impose unless he negotiates a new trade deal.
A Financial Times reporter spoke with textile producers, electronics manufacturers and automotive suppliers trying to understand the disruption market.
Nike suppliers looking to open a factory elsewhere
Musadaq Zulqarnain from Interloop: “We have loyal, long-term customers” © Asad Zaidi/Bloomberg
Pakistan
29%
Mutual Tariffs
If you buy Nike branded socks, you may have come from Interloop, one of Pakistan’s largest textile exporters. Interloop sells about $220 million worth of products to the US each year, supplying about 40% of Nike socks and a similar percentage of Big-Box Retailer Target clothing.
In the wake of Trump’s universal 10% tariffs, Interloop had to lower its target price. The threatened 29% tariffs on goods sold to its biggest customer, the US, could be devastating, Musadak Zulkarnain said he is the CEO. “We have loyal, long-term customers who think we’ll stay for 12-18 months, even with a 29% tariff,” Zulkarnain said. “But beyond that, I’m very concerned.”
How much of this production will remain in Pakistan is dependent on dealings with Trump, not just by Islamabad, but also by rival clothing producers such as Bangladesh and Vietnam. If tariffs fall in Bangladesh, Interloop could revive the shortages there. The interloop loop, which also operates plants in China and Sri Lanka, is stepping up plans to open a factory in Egypt, which faces 10% tariffs.
Meanwhile, searches for new European buyers, including Russia, are being conducted, but Zulkalnein fears “fierce competition” from Chinese producers, which costs low even after potentially high tariffs.
“If demand decreases (due to customs duties), we can keep people staying home for a few months,” Zulkarnain said. “Then we need to start the layoffs.” Humza Jirani of Islamabad
Major manufacturers that the US thinks are not that important
Attractive LED: “Essentially, American consumers pay for us” ©SIPA US/ALAMY
China
55%
Total customs duties
The demand was so high for attractive LED floodlights, LED screens and lighting controls, Chinese companies opened their office in Los Angeles in 2016.
Trump slapped Chinese tariffs in his first term. But nearly a decade later, China’s control of the lighting supply chain accounts for 95% of US imports of LED lamps – it holds an edge with its customers, says Wang Chengming, Marketing Director at Charched LED.
“Essentially, American consumers will pay for us. We are not unsure,” he said, adding that rival manufacturing hubs such as India lacked the infrastructure to compete, but the US could not produce comparable goods. “Chinese products are good and cheap, so why should they go to other countries?”
He said several US clients have resumed their shipping orders as Washington and Beijing agreed to a ceasefire and a 90-day suspension on 145% surcharges on China’s exports. Although the initial deal has declined, Trump said on June 11 that China’s total tariffs would be 55%.
Wang customer orders will be shipped “free” from the port of departure. This means that customers are responsible for logistics and customs costs when goods are loaded onto vessels in Chinese ports. Some buyers have reportedly shipped goods to third countries to hide their Chinese origins for customs purposes, a process known as washing their origins. “I just guarantee that (the order) arrives at the port and leaves the port. Once they get there, I don’t know what will happen to them.”
Charming sells products in 160 countries. Ultimately, Wang said the US will be “increasingly less important” to Chinese suppliers focusing on other markets such as Europe, Asia and China.
“It used to be very important,” he said of the United States. “But (US tariffs) have no effect on us. It’s just a part of the market. The US does not represent the whole world.” Langley, Guangzhou.
Chipmakers struggling to reduce costs
Chip suppliers expect Samsung to push it to lower the price ©VCG/Getty Images
South Korea
twenty five%
Mutual Tariffs
As a supplier of chips for Samsung Electronics and Chinese smartphone manufacturers, South Korea’s Dongwoon Anatech is on the crosshairs of Trump’s trade war. Trump threatened devices with 25% tariffs unless Apple and Samsung switch production to the US, but Chinese smartphone exporters are also facing heavy tariffs.
Dong Woon’s main customer Samsung didn’t want price cuts, but said that if the US does that threat well, it certainly would, said Kim Dong Choe-Ol, chief executive of the leading producer of optimum image stabilization and autofocus chips to prevent camera shaking.
The strict labor laws in Korea make it difficult to control boredom, Kim said. “There are limits to cost savings,” he said.
With that in mind, Dong Woon wants to expand in the Chinese market. In the Chinese market, smartphone customers mainly sell products domestically or in Southeast Asia and Europe. Although China has competitors, Dong Woo has been established for a long time and is one step ahead in both design and customer service.
Dongwoon said not only Samsung, but the pressure to cut prices remains. Car customers Hyundai Motor and its affiliate Kia will likely follow suit. Again, he believes it is driving sales to businesses and countries that are not exposed to US tariffs. Song Jung-A
Coffee producers view the US market as a foothold
Vuong Thanh Cong: “We decided to accept some losses in the US market” © Minh Nguyen/Reuters
Vietnam
46%
Mutual Tariffs
Coffee producer Von Tang Kong Holding had shipments of organic beans and ground coffee from Vietnam’s Central Highlands the day Trump slapped a 46% tariff on the country’s exports. Fearing cancellations by US customers, Vuong Thanh Cong offered huge discounts and suffered losses.
In recent years, manufacturers fearing export curbs and tariffs have moved more manufacturers to Vietnam as part of a growing “China and one” strategy to redraw their global supply chain. However, Vietnam is also a large commodity producer, the world’s second largest coffee exporter after Brazil. The US accounts for almost half of Vuong Thanh Cong’s exports.
Nguyen van Hiep’s chief executive expects the next few months will involve the same. Offering discounts to American buyers to maintain access to the US market. In the long run, I hope their presence in the US will help them gain exposure and access to other markets.
“We have decided to use access to the US market as quality evidence to accept losses in the US market and gain access to other markets,” HIEP said. Losses are also short-term. “That could change when Democrats and others take power in the US.”
Still, the 46% tax would reduce the company’s monthly profits by 15% if it is stuck, the CEO said. Ultimately, it makes sense to look elsewhere. “In the future, the US market will be a significant market, but it is not the only market.” A.Anantha Lakshmi
Automotive Components Company that offers customers a global factory selection
Masao Tsuru: “We could raise our volume.”
Japan
twenty five%
Automatic fee
With factories in 15 countries, Japanese automotive supplier NOK has attempted to make it easier for customers to negotiate tariffs and supply chain disruptions and offer a menu of options.
“Competers without US locations have started communicating with customers that they can supply from within the US, as they have to export from locations like Japan, Mexico, Canada, China, etc., so volumes could rise.”
Still, auto companies have to go through a lengthy approval process for new parts, meaning that suppliers cannot be changed easily or quickly.
The global network of factories is an advantage for NOK, as well as the fact that it has not linked its fate to a single domestic car producer, instead long sought from European, American and Chinese customers among Japanese auto suppliers. Analysts, including Bernstein, say Japanese car producers may have been hit by tariffs the worst. This is 25% for auto-related products and 24% for other items.
NOK’s future may be outside of Japan, as well as outside of the United States. The plan is to diversify into heavy-duty machines, semiconductor components and energy, as well as grow business with Chinese EV manufacturers. Tsuru is also looking for an acquisition. In particular, some suppliers have been hit by tariffs that help integrate their products into the US supply chain and accelerate pivots from the vehicle. Harry Dempsey
