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How Chinese Manufacturers Plan To Get Around US Tariffs As Americans Pay The Price

In the sleek showroom of luxury furniture brand Boloni, Mercury Ma Yanfei is expressing sympathy for his customers in New York.

Tight contracts mean the upmarket kitchens and integrated cabinets shipped from this sprawling Beijing factory are paid for before they even set sail to the United States. So Donald Trump’s extra 25 per cent tariff on Chinese furniture will have to be paid by Americans – Boloni’s customers and dealers.

“They suffer. This is the reality,” says Ma, Boloni’s general manager of international business.

Well-heeled customers in big American cities make up a third of his business. This includes retail customers and property developers who offer Boloni’s kitchens, loungeroom and bedroom “solutions” for new apartments sold off the plan.

“We are facing a big problem with our project section because projects are price sensitive – the budget is done four years before the whole project is delivered.”

But he emphasises that, as a result of the extra US tariffs, “the price will finally be paid by people in the US, not by us”. As a result, the US dealers will have to trim their 40 percent mark up.

Ma is confident, though, that companies will be able to keep trading, despite the tariff hike. Anticipating trouble when US President began threatening tariffs a year ago, Boloni has been busy mitigating its risk.

A showroom will open in Sydney in July, after Boloni began partnering with Chinese property developers on luxury inner city apartments, and Country Garden, another Chinese company which is set to develop 10,000 new homes near the Badgery’s Creek airport.

There are more showrooms in Vancouver and Mexico. Boloni recently acquired a 100-year-old German furniture company. “If we put all the apples in one basket we would have a big problem in the future, so this was our preparation, before [Trump] did anything special,” Ma grins. And he doesn’t think one man can disrupt trade between China and the United States in the long term.

“Trump wants to build a wall, he can build a wall. But eventually people will go under the ground. Most Mexicans actually go to the US by tunnel, right?”

Boloni has a lawyer in Washington arguing for an exemption to the latest US tariffs on the basis that it should be classed as a global company that assembles in China. The company uses a design team in Italy and runs its Chinese factory with German management. Its hardwood timbers come from Europe, and even the glue comes from Germany. “The new China is multinational companies like ours. We just acquired a company in Germany – we can produce in Germany … We can build a factory in the US,” he says.

He knows of other lower-end Chinese furniture companies who will shift their factory to Vietnam to beat the US tariff, but the profits still flow back to China.

“The US, they want to deny globalisation. China is a success because of globalisation. We have a lot of global partners,” he says.

Ma’s confidence is typical of the defiant mood that has swept China this week in the wake of Trump derailing trade talks and hiking tariffs to 25 per cent on USD200 billion in Chinese goods.

On Monday the US trade representative’s office began the paperwork to put tariffs on another US$300 billion in Chinese goods – in short, almost everything else China exports to the US. Beijing retaliated by announcing new tariffs would be added to $US60 million in US products from June 1.

By Thursday, Trump had issued an order banning foreign telecommunications equipment in US networks – seen as a ban on China’s top global brand Huawei. The US commerce department said it would list Huawei as a national security risk, which would potentially ban Huawei from buying crucial US microchips without US government approval.

Chinese state media has coursed with nationalism this week, and vows that China would not give in to US “bullying” on trade.

After months of restraint in response to US complaints about Chinese trade practices including intellectual property theft, forced technology transfers and state-subsidies for Chinese companies, Chinese media outlets have let loose.

hort”Don Quixote style self-deceiving!” cried China Radio International. “Barefaced lies,” wrote Economic Daily. “Who is capricious and who is back tracking?” demanded the usually staid Communist Party official newspaper, People’s Daily.

The coordinated line from state propaganda outlets was that Trump had derailed trade talks with his “extreme pressure tactics”.

Chinese Foreign Minister Wang Yi, in Russia, said the trade talks had made substantial progress but have faced difficulties that “need to be taken seriously and solved”.

Chinese President Xi Jinping and Trump are due to meet at the end of June at the G20 meeting in Japan.

Given the heat in the media, and the nationalistic impulses being invoked, it seems unlikely Xi will back down and hand Trump a deal that cannot be presented as a win to the Chinese public.

The latest economic data for April has shown growth in Chinese retail spending has slowed to 7.2 per cent, as growth in industrial output slowed to 5.4 per cent, after a strong March.

But the Chinese public is being told measures already put in place to support small business, manufacturing and exporters – tax cuts and easier credit – are working and will overcome the tariff threat.

For his part, Ma says he isn’t thinking about the politics, he is just an entrepreneur who will find a way to keep trading if the tariff war continues. “The American people won’t benefit. They still have to buy furniture,” he says. “I don’t think there is any benefit in closing the door to globalisation.”

(Sydney Morning Herald)

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