China bets its vast supply chain can muscle through Trump's tariffs

China is banking on its dominance of global supply chains to help it ride out the pain from Donald Trump’s trade war.

Consider the case of pallet jacks made by Staxx Material Handling Equipment Co. from Ningbo on the nation’s east coast. Chinese production dominates the lower end of the market with a big price edge over western competitors, said export director Thomas Wang, speaking at this month’s Canton Fair in Guangzhou.

American buyers “don’t have good suppliers to replace China,” said Wang, who added that sales to the US account for about a fifth of the company’s production. “All the tariffs will be relayed to end users.”

In addition, the rapidly growing domestic market increasingly acts as an anchor for its global supply chain. That, and a low dependence on the US market, suggests Trump’s US$250 billion in tariffs on shipments cannot quickly upend it. Exports to the U.S account for less than a fifth of China’s total and Deutsche Bank AG estimates that overall, China’s industrial output has only a five per cent exposure to the US market.

“Chinese production serving the rest of the world is five times more important than the supply chain serving the U.S,” said Zhang Zhiwei, chief China economist at Deutsche Bank AG in Hong Kong. “The key issue is whether the US tariffs drive out supply chains from China that serve other countries. History suggests they will not.”