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https://scmp.com/business/companies/article/3013726/chinese-manufacturers-must-bite-tariffs-bullet-or-think-long Companies
Chinese manufacturers must bite the tariffs bullet or think of long-term options to survive, says Seattle glove maker in Shanghai
- Prior tariff threats created a run on disposable gloves in 2018, spurring companies to add capacity, according to Fred Crosetto, the founder of Ammex Corporation, a Seattle company that makes gloves in Shanghai
- As new tariffs loom, some Chinese manufacturers are selling gloves at a discount
The cost of disposable PVC gloves made in China could rise if US President Donald Trump follows through with his threat to add 25 per cent tariffs on another US$300 billion in Chinese-made products, according to suppliers. Photo: Bloomberg
Chinese manufacturers who are subject to higher US import duties must either pass the added costs to their customers, or seek long-term solutions to work around the impact of the US-China trade war, said the founder of a Seattle glove maker who produces 10 per cent of his protective gear in China.
The threat by Donald Trump’s administration to slap a 25 per cent import tariff on US$300 billion of Chinese products - including Ammex Corporation’s Shanghai-made disposable gloves - adds to duties on US$250 billion of made-in-China dog leashes, lather handbags and golf bags. Ammex outsources the manufacturing of its inexpensive, disposal rubber gloves to China.
“We really have no other choice but to buy [those types of gloves] from China, because they are really only made in China, [where the production] probably won't shift for some time,” said the company’s founder and Chief Energising Officer Fred Crosetto. “So when the second wave [of tariffs] comes, we'll probably just have to bite the bullet. We'll just have to absorb that 25 per cent. Some of that we'll try and pass on to customers where we can.”
Crosetto’s comment underscores the bind that stymies manufacturers in China, including those foreign investors who base their production in the world’s most populous nation to take advantage of its abundant workforce, investor-friendly incentives, and vast supply chain.
To get ahead of the first batch of Trump’s tariffs that kicked in last year on US$200 billion of goods, Chinese exporters shipped their products abroad ahead of time, front loading their order books before higher duties kicked in. China’s March exports spiked, as shipments were boosted by 14.2 per cent from last year’s same month, creating a temporary crest compared with the 20.8 per cent decline during the Lunar New Year holiday in January and February.
After the jump, April exports declined by 2.7 per cent, while May’s overseas shipments are likely to shrink by another 3.8 per cent from last year, according to the median forecast in a Bloomberg survey of 21 economists.
“What can I do? I can't buy six months of supply,” said Crosetto. “Maybe I can nibble at the edges here and there, but if this is going to go into effect, you will have to ask what the medium and long-term tactics and strategies around [this] are, because everybody’s in the same boat, everybody's going to have to pay more.”
Front loading can only work as a temporary solution before manufacturers must confront the new reality of higher tariffs, and consider their longer-term options, Crosetto said.
“There was a lot of activity a year ago, when there was panic and a huge amount of front loading,” he said in a telephone interview from Shanghai. “Everybody ran down to Southeast Asia, drove up the cost and created a lot of imbalance. Then things died down a little. But the approach vis-à-vis the United States is: there's not a lot of front loading that you can do.”
Ammex, established in 1988 in Seattle when Crosetto was a couple of years out of the University of Washington, outsources the production of disposable gloves, work gloves and protective coverings to factories in six countries, including China. The founder, who is a member of YPO, a non-profit network of young chief executives, had lived in Asia right after school.
Some of Ammex’s products will be subject to import duties if Trump follows through with his threat to slap 25 per cent tariffs on another US$300 billion of Chinese-made products, said Crosetto.
The US imported US$993 million of disposable plastic and rubber gloves from China in 2018 that would potentially be subject to tariffs later this year, according to data from the US International Trade Commission.
Ammex has shifted some of its operations to Southeast Asia in recent years, with offices in the Philippines and Malaysia that support manufacturing, supply chain, marketing and other functions, Crosetto said.
“The costs in China over the last several years have gotten a lot higher,” he said. “In our business, there's a lot of automation. The countries in Southeast Asia were just better at it. They accelerated faster and a lot of the edges that maybe China had 10 years ago - cheap land, cheap resources, cheap labour - those have all evaporated.”
In addition to selling its products in North America, Ammex is focusing on the Chinese market, where sales growth by the private company has risen 40 per cent every year for the past five years, amid increasing demand in health care, work safety and public hygiene, Crosetto said. About 90 per cent of its products in China are imported.
“The short term challenges stemming from the trade war have zero short, medium or long-term impact on our view of the domestic expansion opportunities in China,” Crosetto said. “China is primed for continued domestic expansion as it grows globally.”