Langfang, the furniture capital of northern China, is facing a hard time. A 25% tariff hike on furniture imported from China by the Trump administration is chipping away at the already shrinking margins and jobs in the city.
Visitors to Langfang’s vast showrooms say the crowds of shoppers are thinning out. Pressure on order books has been mounting, especially after May, when the U.S. levied a 25% duty on $200 billion worth of Chinese products.
“There has been an unmistakable impact ever since the U.S. raised tariffs,” the Asian Nikkei Review quoted Wang, a sales associate in one of the city firms, as saying. Exporters in Langfang say European and South Korean clients had already elbowed out American furniture buyers. But the U.S. numbers have further dropped after the tariff hike.
Some analysts say higher labour and other costs in China had already pushed out some of the manufacturers from Langfang to Vietnam, where production costs are much lower. But alarm bells are ringing louder in the Langfang business circles and elsewhere out of fear that the Trump administration could also clamp down on Chinese exports routed through Hanoi, with a ‘Made in Vietnam’ label. Earlier this month, the U.S. Commerce Department imposed steep duties on South Korean and Taiwanese steel products that had undergone final processing in Vietnam.
Two other factors have dampened the commercial mood in Langfang, located in Hebei province — the heart of China’s coal mining belt and steel industry.
Many private steelmakers in the city have been forced to down their shutters after authorities in Beijing imposed strict pollution controls on factories. But more pain and job losses could follow as the Central government is unhappy with the efforts of the local administration to clean up the water and toxic air, which can easily drift into neighbouring Beijing.
Last month, authorities in the Chinese capital admonished the Mayor of Langfang and his counterparts from five other cities for failing to meet the country’s iron laws on pollution. This followed findings by China’s Ministry of Ecology and Environment that air quality in the six cities had deteriorated. It attributed the rise in PM2.5 particles to the sluggish efforts by local authorities to enforce the country’s anti-pollution norms.
Many observers have been tempted to conclude that the slowdown in the Chinese economy, amply visible in Langfang and elsewhere, is a partial victory for the Trump administration in its trade war with China. The perception that the U.S. has won its first battle in the tariff war is taking root after the Chinese economy grew by 6.3% in the first half of 2019, the slowest in 27 years.
Natural transition
Soon after the numbers were out, President Donald Trump triumphantly sought to link the slowdown to the trade war by tweeting that the U.S. tariffs were having “a major effect” on China’s economy. He laced it with a warning that Washington could impose more pressure on Beijing.
But the hard-nosed Chinese, known for playing the long game, have been unfazed by this attempt to browbeat Beijing into a compromise. In their riposte, they asserted that the slowdown was the result of a natural transition of the Chinese economy as it moves up the value chain.
They pointed out that in tune with the changes in the global industrial landscape, high-end companies were expected to expand in China, while the low-tech industry was likely to move overseas, chasing lower labour costs and other advantages.
“Most of those pulling out are mid- to low-end firms and the impact on China’s economic growth, industry upgrading and employment is generally controllable,” said Meng Wei, a spokesperson of the National Development and Reform Commission, China’s top planning body, at a press conference.
Rejecting the possibility of an industrial exodus from China, she stressed that “it is not easy for companies to relocate, and there are a number of factors to consider, including operating costs, industrial workers, supply chain support, transportation and even manufacturing culture”.
Atul Aneja is The Hindu ’s Beijing correspondent.
