In the engine room of China’s economy Trump’s tariffs are already beginning to bite
If China is known as the world’s factory, then the province of Guangdong is the engine room.
It is here, in the thousands of factories that dominate city suburbs where many of your consumer goods likely started their life, and it is here where Donald Trump’s tariffs are hitting first.
China has arguably been the top target in the US president’s trade war. Not only was it subject to a suite of measures during his first term, but this time round it is the only country that has had no carve-outs, no delays and tariffs are levied on 100% of Chinese goods.
A factory worker on the assembly line in an electrical appliances factory in Guangdong
As of 4 March anything from China sold to the US faces a tax of at least 20%, and for many goods it’s more than that.
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Johnny Pan
Johnny Pan shows us the assembly line at his factory. This business has been in his family since the 90s and it makes appliances such as fans, air purifiers and air fryers.
Lines of workers are assembling the more complex components by hand.
A third of his products are currently sold to America. Tariffs have had an immediate impact; in just the last month they have seen a major drop off in orders amounting to millions of dollars.
“We have to seek out new markets to get away from the US,” Mr Pan explains. “We should be diving more into product development. But now we have to figure out ways to survive.”
He is actively looking to move some of his manufacturing abroad to avoid the tariffs.
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A factory that makes electrical appliances in Guangdong
But the alleyways of this area are scattered with smaller operations with fewer options.
Tiny workshops often specialise in just one element of a big process, small cogs in a supply chain they cannot control.
Through one garage door there are three sewing machines whirring; this tiny operation specialises in attaching buttons to garments.
A small factory which specialises in adding buttons to garments
The husband-and-wife team admit they’re worried, incomes are lower, they explain, and it could have an impact on the thousands of contract workers who exist job to job.
Many here don’t have an option to raise their prices. If the American consumer isn’t willing to pay more, the only option is to seek new markets, but if new markets don’t provide such willing buyers, jobs and livelihoods are at stake.
Indeed, this is China’s key concern. A huge 20% of its GDP is exports, and a trade shock will have a major impact.
And the economy is already struggling. Growth has slowed dramatically in recent years, there is very high youth unemployment and a lot of low-paid migrant workers.
The fact Beijing’s response thus far has been relatively restrained signals an awareness it can ill afford a major escalation.
There is some solace in the fact China is a lot less exposed to the US than it once was – the trade war of 2016 means it already sends far fewer goods to America than it once did.
But this is still a system that fears instability above all else and can’t be seen to lose face.
Many point to the broader context of two global superpowers that both crave dominance and are, in their own ways, trying to direct a shifting global order.
Tariffs may just be one issue in a bigger global standoff.
China might still be a mighty economy that can absorb some pain, but its leaders are unlikely to take things lying down.
The Federal Reserve has defied calls from US President Donald Trump for a cut to the interest rate by leaving it unchanged.
The decision means it has an effective rate of 4.3%, where it has remained after the central bank, known as the Fed, reduced it three times last year.
“We’re keeping the rates high, and it’s hurting people from buying houses,” Mr Trump told reporters. “All because of the Fed.”
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Mr Trump has repeatedly been asked whether he would fire Fed chair Jerome Powell if he failed to heed his demand to cut the rate.
In June, the US president labelled Mr Powell a “stupid person” after the Fed decided not to change rates. Then less than two weeks later, in a further attack, he said the Fed’s chair should “ashamed” and would “love” him to resign.
The US president has spent months verbally attacking Mr Powell.
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There were clear tensions between the pair last Thursday as they toured the Federal Reserve in Washington DC, which is undergoing renovations.
When taking questions, Mr Trump said: “I’d love him to lower interest rates,” then laughed and slapped Powell’s arm.
There were clear tensions between the US President and Mr Powell during last week’s visit to the Federal Reserve. Pic: Reuters
The US president also challenged him, in front of reporters, about an alleged overspend on the renovations and produced paperwork to prove his point. Mr Powell shook his head as Trump made the claim.
When Mr Trump was asked what he would do as a real estate mogul if this happened to one of his projects, he said he’d fire his project manager – seemingly in reference to Mr Powell.
Donald Trump challenged Mr Powell in front of reporters. Pic: Reuters
Unlike the UK, the US interest rate is a range to guide lenders rather than a single percentage.
The Fed has expressed concern about the impact of Mr Trump’s signature economic policy of implementing new tariffs, taxes on imports to the US.
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Trump’s tariffs: What you need to know
On Wednesday, the president said he was still negotiating with India on trade after announcing the US will impose a 25% tariff on goods imported from the country from Friday.
Mr Trump also signed an executive order on Wednesday implementing an additional 40% tariff on Brazil, bringing the total tariff amount to 50%, excluding certain products, including oil and precious metals.
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The committee which sets rates voted 9 to 2 to keep the benchmark rate steady, the two dissenters were appointees of President Trump who believe monetary policy is too tight.
In a policy statement to explain their decision, the Federal Reserve said that “uncertainty about the economic outlook remains elevated” but growth “moderated in the first half of the year,” possibly bolstering the case to lower rates at a future meeting.
Nathan Thooft, chief investment officer at Manulife Investment Management, described the rate decision as a “kind of a nothing burger” and it was “widely expected”.
Tony Welch, chief investment officer at SignatureFD, agreed that it was “broadly as expected”. He added: “That explains why you’re not seeing a lot of movement in the market right now because there’s nothing that’s surprising.”
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