Manufacturers prepare for higher costs

As President Donald Trump threatens to impose his first tranche of tariffs on the world Saturday, Chinese manufacturers are bracing for impact.

Though Trump is proposing his biggest initial swing at Canada and Mexico with a proposed 25% tariff, the U.S. president still has China on his radar. After a report that the administration could delay at least some of the duties until March 1, the White House said Friday that Trump will follow through on plans to slap 10% tariffs on imports from China on Saturday. On the campaign trail, he threatened tariffs on Chinese-made goods of 60% or more.

Trump has contended tariffs boost U.S. manufacturing and job growth, and early in his second term has used the threats to gain leverage in policy negotiations. Even so, if Trump imposes the levies, they could raise prices for U.S. consumers on everything from furniture to electronics.

In China, new duties could damage exporters who rely on the U.S. market. On a recent trip to the manufacturing belt of Guangdong province, CNBC found factory owners preparing for the tariff threat. Here are three main takeaways:

Hoping to beat Trump’s tariffs, furniture seller Harry Li is doubling the number of products he ships to the U.S. and stockpiling them in warehouses there.

He expects the strategy will force him to raise prices as much as 10% — no matter what Trump’s tariffs turn out to be. 

He sells four out of five of his tables and other large furnishings to American consumers.

“I have to ship them in advance and take on more risk,” he said at his Foshan factory. 

His company Tianyiled plans to keep the extra inventory in the U.S. until Trump’s tariff plan for China becomes clearer.

In addition to stockpiling, Li is considering other ways to avoid the border taxes.

“One thing we can do is to pick those products not on the tariff list and export them to the U.S. instead,” he said. 

In the nearby industrial city of Guangzhou, water purifier maker Zheng Yu is scouring the globe to find a new production base to supply the U.S. outside of China.

He plans to set up assembly lines in a third country, buying some equipment and components from China while hiring locally for certain jobs. 

Zheng’s company Tesran is considering Vietnam, Malaysia, and Mexico as manufacturing bases, but is leaning toward Dubai even though costs will be 30% higher than in China.

“The domestic market is too competitive. We have been wanting to jump out of it for some time,” he said. “Trump’s tariffs gave us the final push.”

The Tesran founder is also already in touch with his U.S. clients to discuss splitting the tariffs. He is hoping his partners will take on at least half of the cost.

All the businesses CNBC spoke to had a breaking point at which it would no longer make sense to sell to the U.S. The tariff thresholds ranged from 20 to 60%, and depended on the industry and the size of a company’s margins.

Water purifier maker Zheng said another wild card is whether President Trump unleashes proposed universal tariffs that, in his case, would raise costs for Dubai. 

“Then the U.S. is out,” he said.

Across Guangzhou, Leng Rong, who makes skin care products, is worried he might have to stop exporting to the U.S. completely.

His goods got hit with tariffs north of 20% during Trump’s first term and it caused big losses for his company, Keni.

With his thin margins, Leng is hoping he can pass the cost of any tariff to his customers.

“In the past, we all felt the U.S. market was the greatest market that everyone wanted to sell to. But with all the uncertainties and unfriendly decisions, the U.S. is less attractive now,” Leng said at his Guangzhou factory. “It’s a real pity.”