China economy

Better watch out: trade war to push up US prices of China-made Christmas decorations – but not until next year

  • US relies on China to make vast majority of artificial Christmas trees and festive ornaments, and buyers could face cost increases if they try to shift suppliers in short term
PUBLISHED : Friday, 23 November, 2018, 4:58pm
UPDATED : Friday, 23 November, 2018, 5:51pm

The one thing Chinese manufacturers and US suppliers of holiday decorations want for Christmas is a ceasefire in the US-China trade war, because barring that, festive decorations are likely to be much more expensive for US consumers next year, hurting business on both sides of the Pacific Ocean.

Nine out of every 10 ornaments that decorate US homes is made in China, so this is no small matter.

This year, Chinese suppliers of artificial Christmas trees, Santa Claus ornaments, and glass ball decorations were able to ship most of their goods during the summer, before US tariffs on them took effect in late September.

But next year, not only will those exports face a US tariff, but that tariff is due to rise to 25 per cent from January 1, if US President Donald Trump and his Chinese counterpart Xi Jinping cannot agree to keep the tariff at the present 10 per cent rate.

The prospect of having to compensate for the tariff, and the likelihood that orders will drop, petrifies Chinese ornament suppliers, who rely heavily on the US market.

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China now supplies more than 80 per cent of the world’s Christmas decorations every year, of which around a half flows to the United States, according to United Nations statistics. And shipments from China account for more than 90 per cent of America’s Christmas goods imports, according to the data.

The nation shipped 414,912 tonnes of festive products to the rest of the world during the first nine months of this year, 1.1 per cent more than in the same period last year, with the vast major of the shipments beating the 10 per cent US tariff that took effect on September 24, Chinese customs data shows.

“The influence of the tariffs has been limited [this year] and our export business is even better than last year. Orders from old clients have grown by 30 per cent,” said Chen Yikui, sales manager of the Little Angel Christmas craft factory in Chaozhou, Guangdong province, a top export manufacturing hub of the world’s second-largest economy.

“Our US clients recognised the risks from trade tensions and confirmed their orders early to avoid the impact of the tariffs,” Chen said. “Our shipments started in May and were all finished in September.”

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An executive of Lucktrees, an artificial Christmas tree manufacturer in Shenzhen, who would only be identified by his surname Liu, said the trade war had not yet had any impact on his company, since all contracts for the coming holiday season were signed in February and March, with shipments completed during the summer.

But given the US was the company’s main market, business was likely to worsen significantly next year when US tariffs on US$200 billion of Chinese goods are expected to jump to 25 per cent, he said.

“We will discuss with our clients about how to offset the cost of higher tariffs. Maybe we could share the burden in some cases, but everything is still unclear,” Liu said. “So far [US clients] have not contacted us.”

Liu’s concerns were echoed by a manager of St Pauli Garment & Craft Factory in Shantou, Guangdong province, surnamed Xu, who warned that if the US raised tariffs his company’s customers were likely to begin demanding lower prices to offset the levy. This would put the company’s future profits in jeopardy, he said.

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During the January-October period, China’s overall exports jumped 20.1 per cent from a year earlier, as manufacturers rushed to front-load shipments this year for orders of goods for next year to avoid higher US tariffs due to take effect on January 1, according to customs data.

But Xu said front-loading of orders was difficult for smaller firms selling indoor decorations.

“Most of our products are customised. Clients won’t place their orders until next March, when they know what market’s interests will be,” he said.

Christmas decoration suppliers in the Yangtze River Delta, Zhejiang province, another Chinese export centre, are also worried about the future.

In Yiwu, a centre of Christmas product manufacturing about 284km southwest of Shanghai, Tong Zhou, chief executive officer of Shengjin Arts & Crafts, a festival decorations enterprise, said he had already shifted his business focus to Europe, since the volume of orders from the US had already dropped by about 30 per cent this year.

Around 600 companies in Yiwu produce nearly two-thirds of the Christmas decorations sold worldwide, with 30 per cent of their orders from the US. The city exported 6 billion yuan (US$865 million) worth of Christmas-related goods last year, according to Cai Qinliang, secretary general of the Yiwu Christmas Products Industry Association.

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Despite an increase in volume, the total value of China’s Christmas exports during the first three quarters of this year fell 1.9 per cent to US$3.6 billion due to price competition, customs data shows.

Most of the links in the Christmas products supply chain are located in China, suggesting a higher cost if clients tried to shift their purchases to other regions in the short run.

This year, the bigger challenge is coming from the domestic market, after many clients running bricks-and-mortar stores cut back their purchases of Christmas goods or even gave up the business altogether.

“Some dealers and wholesalers believe the government might now try to play down celebrations of Western festivals in China” given the trade war, Chen said.