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Trade war

China's furniture makers struggle to cushion tariff blow

Trade war hampers GDP growth of world's factory

Chinese workers sort out cushions to be exported. The country's GDP growth dropped to the lowest in three decades as the trade war drags on.   © Getty Images

LANGFANG, China -- From switching to cheaper fabrics to clearing order books from the U.S., Chinese furniture manufacturers in this city just south of Beijing are hurriedly adjusting to the new reality of 25% tariffs.

Home to the largest concentration of furniture factories in northern China, Langfang offers a snapshot of what is happening in the country -- once dubbed the factory of the world -- as it marked the slowest economic growth since 1992, according to statistics released Monday.

The yearlong trade war with the U.S. looks to be one key factor in China's weak gross domestic product growth during the April-June quarter.

Inside a sprawling multi-tenant furniture emporium in the city's Shengfang district, few customers were to be seen during an early July visit. The establishment covers 550,000 sq. meters. Multiple stores were closed.

"There has been an unmistakable impact ever since the U.S. raised tariffs," a sales associate named Wang said. The company he works for ships metal chairs to the U.S.

"There were not as many American clients compared to Europe or South Korea to begin with, but the numbers have fallen further," he said. "Order units have shrunk to a smaller scale."

A furniture wholesale showroom in Langfang. Orders from the U.S. have dropped in recent months. (Photo by Issaku Harada)

Furniture is one category of goods targeted by the American tariffs covering $200 billion of Chinese products first levied by President Donald Trump last year. The duties jumped to 10% last September, then to 25% in May.

Trump tweeted Monday morning that the "tariffs are paid for by China devaluing & pumping, not by the U.S. taxpayer!"

While economists have questioned Trump's rationale, an export manager at a midsized furniture maker in Langfang spoke of efforts on the Chinese side to cushion the impact of the tariffs.

"Some furniture manufacturers that export to the U.S. have switched to cheaper materials to avoid final prices jumping due to the additional tariffs," the manager named Huang said. "They have done so after consulting with importers."

Even so, he said, higher prices are inevitable, and "the majority of these additional costs are shouldered by the American importers."

Some manufacturers have shifted production to Vietnam, but Huang said that many plants there also have seen orders dry up, due to U.S. policy.

Chinese furniture manufacturers are said to be alarmed by American efforts to crack down on trade routes designed to circumvent tariffs. The U.S. Commerce Department this month slapped hefty tariffs on South Korean and Taiwanese steel products that underwent final processing in Vietnam.

China's dismal economic report for the second quarter highlights the manufacturing sector's troubles amid the trade war. The country's secondary economic sector, which includes manufacturers, grew 5.6%, slowing by 0.5 percentage point from the first quarter.

Furthermore, growth by foreign manufacturers operating in China totaled 1.4% during the first half, far below the 6% increase for the entire industrial sector. Many foreign companies are shifting capacity to Southeast Asia.

Beijing has acknowledged the strained environment for foreign enterprises.

"Business confidence in some foreign firms in the country had been affected by the trade friction provoked by the U.S. side, with some worrying about retaliatory measures [by China]," Gao Feng, spokesperson for the Ministry of Commerce, said Tuesday.

One senior economic official tried to put a positive spin on the situation.

"Factories that leave China because of cost disparities are doing so to upgrade industry, not to withdraw," said the source.

But China's economic woes extend beyond trade. About 7.37 million people were hired in urban areas during the first half of 2019, down 2% from a year earlier. This does not bode well for university students, who traditionally begin employment this month.

The number of bankruptcies by private-sector companies has reached a high-water mark, adding to the body blow delivered by the U.S. tariffs.

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