Press "Enter" to skip to content

U.S.-China Trade War Hits a New Phase, and a Boot Maker Trembles

DONGGUAN, China — Bruce Xu’s factory in southern China produces just about the most all-American footwear there is: real leather cowboy boots, complete with generous heels and expressive stitching up the sides.

Lately, though, the trade war has made running an all-American business in China “a big headache, a big pain,” Mr. Xu says. And the pain, he acknowledges, is about to get worse.

Fourteen months into their trade war, the United States and China — plus the workers, consumers, factory owners and more who depend on commerce between the two nations — are about to face their biggest test yet.

On Sunday, the United States began charging a 15 percent tax on more than $100 billion worth of Chinese goods, Mr. Xu’s boots included. This came in addition to the 25 percent tariffs President Trump had already imposed on $250 billion on everything from cars to aircraft parts from China. Those levies are going up to 30 percent in October.

Beijing retaliated with increased tariffs of its own on Sunday. Both governments have more scheduled for December.

The two sides, in other words, have settled in for a fight that could last beyond next year’s American elections, no matter how punishing the consequences might be.

Mr. Trump believes the American economy is stronger than China’s, despite hints of a coming recession in the United States, and so Beijing will have to give in.

China’s leaders are betting that the Chinese economy, while slowing, is healthy enough to outlast Mr. Trump. They believe their own efforts to curb China’s excessive lending, not the trade war, are holding the economy back, and if needed, they could suspend recent limits on debt to juice the economy again.

Chinese leaders are also increasingly pessimistic that they can reach a comprehensive deal with Mr. Trump, given his erratic negotiating style and new threats issued just a week ago.

Beijing, therefore, is showing no sign of backing down. It has taken steps to blunt the trade war’s impact on consumers and companies, and hinted that it could use the value of its currency as a weapon to strike back, which could shake markets if it follows through.

ImageCreditGiulia Marchi for The New York Times

Should the trade war seriously damage the Chinese economy, however, the world would lose its biggest single driver of economic growth in recent years. A lengthy tariff conflict might also force even more American companies to look for other places to set up their factories. That could be a complicated and expensive process that dents their productivity for years to come.

Both sides are considering ways to help businesses endure the fight. Mr. Trump has boosted aid to farmers and contemplated tax cuts. But thanks to the Chinese government’s tight control over the economy, Beijing has more options, including dramatic steps such as flooding the financial system with money or ramping up government spending.

On Tuesday, the central government announced measures aimed at empowering the country’s shoppers, including discounts for appliance purchases and a weakening of traffic-related restrictions on the sale of new cars. It is trying to find new markets for China’s factories, including by trying to reach a trade deal covering most of eastern and southern Asia before November.

The government has also been trying to directly help small businesses slammed by both the trade war, which has hurt exports to the United States, and the debt reduction campaign, which has pinched lending. In May, Zhejiang Province in eastern China unveiled a $30 billion plan to cut taxes and regulatory costs for small businesses.

Still, signs of strain are not hard to find. In the city of Huzhou, in Zhejiang, local officials in December surveying the impact of the trade war found a company called Tianzhen Bamboo Flooring that was laying off workers and trying to open new markets in Europe and Canada. A person at the company who answered the phone this week as Ms. Zhang confirmed that some workers were cut, and that Tianzhen had not had much luck with new markets so far.

Whether China’s strategy works will depend a lot on how businesspeople like Mr. Xu weather the coming months.

ImageCreditGiulia Marchi for The New York Times

Mr. Xu, 50, is the general manager at Yong Du Shoes, which produces 800,000 to a million pairs of cowboy boots a year. Pretty much all of them are sold to the United States.

The company has around 700 workers in Dongguan, an industrial city near Shenzhen and Hong Kong. Mr. Trump’s tariffs are only one of many rising costs, including labor.

“Year after year after year after year, our profits have become thinner and thinner,” said Phillip Lee, 62, a consultant for Yong Du.

Even the weakening Chinese currency is a temporary balm, Mr. Lee said. The dollars that Yong Du earns from its American partners are now worth more in Chinese currency than they were before. But when the exchange rate shifts, overseas buyers quickly come asking to renegotiate their pricing agreements, Mr. Lee said.

“Customers are very fast,” he said. “They figure it out very quickly.”

That has left Yong Du with only a few unappealing options.

Laying off workers or trimming salaries would help. But with inflation in China already eating away at earnings, Mr. Lee said he had not been able to bring himself to that.

The company could try to sell its boots in Europe, but who would buy them? “There isn’t that culture around cowboy boots in other countries,” Mr. Xu said.

Yong Du could try producing more of its shoes outside of China — in Southeast Asia, for instance. Mr. Lee has helped run factories in Vietnam before, though, and the language barrier caused major problems. “Vietnam isn’t so simple,” he said.

It would also be tough, Mr. Lee said, to find enough workers in Southeast Asia who are up to snuff. Many of the company’s staff in Dongguan have more than a decade of shoemaking experience, he said.

Mostly, therefore, Yong Du Shoes will have to wait.

In half a year or so, when the company’s American partners release new models of boots, they might be able charge higher prices to help offset the tariffs, Mr. Lee said. Even then, the companies will not likely want to raise prices on older models that are consistently strong sellers.

Mr. Lee said that Yong Du and its American partners had helped each other through tough times before. “We’ve worked together long enough that everybody is very familiar with each other,” he said.

“It’s only because this problem came up all of a sudden that we’re all having a hard time dealing with it,” Mr. Xu said.

ImageCreditGiulia Marchi for The New York Times

Every year, Mr. Xu said, he travels to the United States to see customers. These visits have given him some sense of American cowboy culture, even if the whole thing still puzzles him somewhat.

“It’s very strange,” he said, smiling. “They have horse-riding competitions and bull-riding competitions. People of all kinds take part. Foreigners’ ways of thinking can be very strange.”

Raymond Zhong reported from Dongguan and Keith Bradsher from Beijing. Ailin Tang contributed research from Dongguan.


Be First to Comment

Leave a Reply

Your email address will not be published.