Can Chinese Businesses Abandon the US Market?

In the past week, the global capital markets were in disarray.

On April 2, Trump signed an executive order imposing “reciprocal tariffs” on numerous countries, causing significant declines in the three major U.S. stock indices and sparking ongoing volatility in Asian stock markets, crude oil futures, cryptocurrencies, and precious metals.

Unlike the panic and pessimism in the capital markets, foreign trade practitioners under this tariff “club” seem relatively calm, even numb. Since Trump’s return to power, foreign trade companies and cross-border merchants have been mentally prepared, but some were still caught off guard when the hammer finally fell.

No one knows how this so-called “economic revolution” by Trump will ultimately conclude.

1. Who are the winners and losers?

According to the April 2 executive order, almost all Chinese goods exported to the United States will incur an additional 34% tariff. Combined with previous rates, total tariffs on some goods (such as textiles and machinery) could reach up to 54%. A report by BOC International estimates that considering factors like the fentanyl issue, the actual tax rate on Chinese goods could rise to 65-70%.

“This is devastating for 80% of small-package direct mail sellers,” said Jason, who runs a direct-to-consumer (DTC) eyewear brand.

Jason’s eyewear brand launched in early 2024 and quickly entered the U.S. market, boasting a high cost-performance ratio and fast product updates, with a repeat purchase rate once reaching 20%. However, with the increasingly severe Sino-U.S. trade environment this year, he is gradually shifting his business focus to other developed countries. “As long as you’re doing cross-border goods, you’re affected,” Jason currently adopts the mindset of “take it one day at a time,” ready to completely exit the U.S. market at any moment.

Unlike cross-border “newbies” like Jason, Yiwu big seller Su Jian has been through multiple trade frictions since the “Trump 1.0” era. “There are impacts for sure, but we’re used to it.” Over the years, Su Jian expanded export markets to dozens of countries, so this round of tariff hikes has limited impact on the overall business landscape.

To avoid U.S. tariff risks, many companies previously shifted supply chains to Southeast Asian countries. However, the biggest difference with this U.S. tariff hike is that it targets not only goods from China but also over 100 global trade partners, meaning companies with factories in Southeast Asia are not exempt.

Vietnam was once the biggest winner of the Sino-U.S. trade war, absorbing 30% of China’s transferred production capacity over the past decade, with exports surging from $150 billion to $600 billion. However, this “reciprocal tariff” slaps Vietnam with a rate of 46%, among the highest globally. According to media reports, Vietnam’s top leaders have indicated readiness to negotiate reducing import tariffs on U.S. goods to zero to avoid domestic economic shocks.

In contrast, Mexico might be one of the few countries benefiting from the “reciprocal tariffs.” Article 3 (d) and (e) of the executive order stipulates that goods imported from Canada and Mexico remain subject to the tariff policy effective in March 2025—25% tariffs on all Canadian or Mexican products that do not meet the USMCA origin criteria (10% tariffs on energy/energy resources and potash from Canada). Xue Feng, a partner at Founders Law Firm, explained that these clauses mean the reciprocal tariffs do not apply to Canada and Mexico, and key goods (such as automobiles, agricultural products, textiles, and pharmaceuticals) continue to enjoy duty-free access to the U.S.

2. Should they give up, or persist?

Using tariffs as a weapon and negotiation lever by Trump is not new for companies forced to play the “pawns” role. The key issue is the bottom line they’re willing to bear and whether they’re prepared to pay the necessary price.

In February, former dean of the Ministry of Commerce’s Research Institute, Huo Jianguo, disclosed at an event at the China Enterprise International Service Center that according to a U.S. Congress proposal not yet activated, tariffs on Chinese goods will increase to about 40%. At that time, Trump just announced a 10% tariff hike on Chinese goods. While visiting Zhejiang, Huo found businesses generally believed a 10% tariff is manageable. “If costs were to be shared, businesses would bear 30%, importers another 30%, and another 30% transferred to consumers.”

Han Ling, operating a high-end women’s lingerie brand, told us, “Raising prices by 1-2 dollars will cover the 10% increase,” but with the sudden tariff spike, foreign trade firms are recalculating cost sharing. Some merchants angrily shared customer emails on Xiaohongshu requesting lower supply prices, stating, “This business isn’t worth it.”

In practice, company responses fall into three categories:

1. Temporary Suspended Group

The company Li Jing works for just built a factory in Cambodia earlier this year, “Originally planned a business trip during the Qingming Festival, but now all projects are halted due to the policy.” Not only Li Jing; many merchants stated on social media they received temporary suspension notices from North American clients right after Trump’s order.

2. Prepared Response Group

After Trump won last year’s election, some firms worried about a new tariff war, attempting to shift business to Southeast Asia, the Middle East, or other emerging markets or reduce investments in the U.S. market. Many small to mid-sized enterprises started increasing overseas warehouse deployments to hedge against direct export goods tariffs. Cross-border e-commerce platforms like Temu and SHEIN began investing more in a “semi-managed” model last year, guiding merchants to choose overseas warehouses.

3. No Alternatives Group

However, not every region can be a “substitute” for the U.S. market. According to several institutions, like FTI Consulting, the U.S., which bred e-commerce giants like Amazon and Wish, will see e-commerce sales reach about $1.2 trillion in 2024, a market size nine times Southeast Asia’s and 32 times the Middle East’s.

“Brands capable of rapid overseas growth will undoubtedly choose the U.S. market first. Only by establishing a foothold in the U.S. can you be considered a truly global brand,” said a cleaning appliance brand.

If there’s no better choice, some businesses are reluctant to abandon the U.S. market. Others simply have no alternative. Han Ling’s brand is supported by a large traditional foreign trade enterprise doing long-term OEM work for European and Middle Eastern clients, “To protect client interests, we can’t target Europe and the Middle East with our brand. Southeast Asia and South America’s spending power doesn’t fit our brand positioning, nor align with the aesthetic direction,” Han Ling says.

Therefore, regardless of how the tariff war develops, Han Ling must confront it. On one hand, she seeks to cut factory production costs, “Reducing materials or labor costs to cut 10%.” On the other hand, raising prices, planning to hike e-commerce channel product prices by 20% in mid-April, “ultimately passing the costs to consumers.”

In Huo Jianguo’s view, high tariffs have been Trump’s consistent negotiation strategy, “First name a price to push for terms. We are exploring ways to alleviate these conflicts. National interests must be protected, necessary actions must be taken.”

In response to the new tariff policy, China quickly implemented countermeasures:

The Office of the State Council Tariff Commission announced imposing a 34% tariff on all U.S. imports, effective at 12:01 on April 10, on top of the existing applicable tariffs.

The Ministry of Commerce decided to add 16 U.S. entities, like Gaodian Aviation Technology Company, to the control list for export controls and listed 11 entities such as Skydio onto the unreliable entity list; from April 4, initiated an anti-dumping investigation on medical CT tubes imports from the U.S. and India.

The General Administration of Customs decided to suspend the high sorghum import qualification for one U.S. company, the import of poultry bone meal qualification for three U.S. companies, and the import of poultry products qualification for two U.S. companies.

On April 4, the Ministry of Commerce and the General Administration of Customs issued an announcement regarding export controls on seven categories of medium-and heavy rare earth-related items such as Samarium, Gadolinium, Terbium, Dysprosium, Lutetium, Scandium, and Yttrium.

“It’s too early to say there’s a final verdict; who knows what Trump will do next?” For foreign traders like Han Ling who are accustomed to facing adversity, whether it’s the high tariff policy or the upcoming end of the small tariff exemption policy in a month, everything is just beginning, and all they can do is wait and see and respond as best as they can.

Editor: Zhongxiaowen