# Can Trump's tariffs break China's grip on manufacturing?

**5 March 2025**

**Joel Guinto**  
BBC News  
Reporting from Singapore

US President Donald Trump has hit China with a second tariff in as many months, which means imports from there .

This is his latest salvo against Beijing, which already faces steep US tariffs, from 100% on Chinese-made electric vehicles to 15% on clothes and shoes.

Trump's tariffs strike at the heart of China's manufacturing juggernaut - a web of factories, assembly lines and supply chains that manufacture and ship just about everything, from fast fashion and toys to solar panels and electric cars.

China's trade surplus with the world rose to a record $1tn (£788bn) in 2024, on the back of strong exports ($3.5tn), which surpassed its import bill ($2.5tn).

It has long been the world's factory - it has thrived because of cheap labour and state investment in infrastructure ever since it opened its economy to global business in the late 1970s.

So how badly could Trump's trade war hurt China's manufacturing success?

## What are tariffs and how do they work?

Tariffs are taxes charged on goods imported from other countries.

Most tariffs are set as a percentage of the value of the goods, and it's generally the importer who pays them.

So, a 10% tariff means a product imported to the US from China worth $4 would face an additional $0.40 charge applied to it.



**Trump's tariffs strike at the heart of China's manufacturing juggernaut**

Increasing the price of imported goods is meant to encourage consumers to buy cheaper domestic products instead, thus helping to boost their own economy's growth.

 But economic studies of the impact of tariffs which Trump imposed during his first term in office, suggest the measures .

Trump has said his most recent tariffs are aimed at pressuring China to do more to stop the flow of the opioid fentanyl to the US.

He also imposed 25% tariffs on America's neighbours Mexico and Canada, saying its leaders were not doing enough to crack down on the cross-border illegal drug trade.

## Can Trump's tariffs hurt China's factories?

Yes, analysts say.

Exports have been the "saving grace" of China's economy and if the taxes linger, exports to the US could drop by a quarter to a third, Harry Murphy Cruise, an economist at Moody's analytics, told the BBC.

The sheer value of China's exports - which account for a fifth of the country's earnings - means that a 20% tariff could weaken demand from overseas and shrink the trade surplus.

"The tariffs will hurt China," Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis in Hong Kong, told the BBC. "They really need to do much more. They need to do what Xi Jinping has already said - boost domestic demand."

That is a tall task in an economy where  and .

Chinese people have not been spending enough to recharge the economy - and Beijing has just  to boost consumption.

While tariffs can slow Chinese manufacturing, they cannot stop or replace it that easily, analysts say.



**China has been pivoting from making garments and shoes to advanced tech such as robotics and artificial intelligence (AI)**

"Not only is China the big exporter, it is sometimes the only exporter like for solar panels. If you want solar panels you can only go to China," Ms Garcia-Herrero said.

China had begun pivoting from making garments and shoes to advanced tech such as robotics and artificial intelligence (AI) long before Trump became president. And that has given China an "early mover" advantage, not to mention the scale of production in the world's second-largest economy.

Chinese factories can produce high-end tech in large quantities at a low cost, said Shuang Ding, chief China economist at Standard Chartered.

"It's really difficult to find a replacement... China's status as a market leader is very difficult to topple."

## How is China responding to Trump's tariffs?

.

And it has targeted US firms in aviation, defence and tech with export restrictions and announced an anti-monopoly investigation against Google.

China has also spent years adapting to tariffs from Trump's first term. Some Chinese manufacturers have moved factories out of the country, for instance. And supply chains have come to rely more on Vietnam and Mexico by exporting from there to bypass the tariffs.

And yet, Trump's recent tariffs on Mexico would not hurt China too much because Vietnam is a bigger backdoor for Chinese goods, Ms Garcia-Herrero said.

"Vietnam is the key here. If tariffs are imposed on Vietnam, I think it will be very tough," she said.



**DeepSeek shocked Silicon Valley and unnerved Washington when it released a chatbot that rivals OpenAI's ChatGPT**

What concerns China more than tariffs, analysts says, is US restrictions on advanced chips.

These restrictions have been a major sticking point between the two countries but they have also fuelled China's determination to invest in homegrown tech that is independent of the West.

It's why  Silicon Valley and unnerved Washington when it released a chatbot that rivals OpenAI's ChatGPT. The firm had reportedly stockpiled Nvidia chips before the US began cutting off China's access to the most advanced ones.

Although this could "impact China's competitiveness, I don't think that would affect China's status as a manufacturing power," Mr Ding of Moody's said.

On the other hand, any ground China gains in advanced tech manufacturing will boost its high-value exports.

## How did China become a manufacturing superpower?

It happened because of state support, an unrivalled supply chain and cheap labour, analysts say.

"The combination of globalisation, as well as China's pro-business policies and market potential, helped to attract the initial wave of foreign investors," Chim Lee, an analyst at The Economist Intelligence Unit, told the BBC.

The government then doubled down, investing heavily in building a sprawling network of roads and ports to bring in raw materials and take Chinese-made goods to the world. What also helped was a stable exchange rate between the Chinese yuan and the US dollar.

A shift in recent years towards advanced tech has made sure that it will continue to be relevant and ahead of its competitors, analysts say.



**It is very difficult to replace China as the world's factory, analysts say**

China already has plenty of economic clout from being a manufacturing powerhouse. But there is also a political opportunity as Trump's tariffs upend America's relationship with the world.

"The door is ajar for China to position itself as an advocate of free trade and a stable global force," said Mr Cruise of Moody's.

But that is not easy, given Beijing has been accused of flouting international trade norms, such as  on imports of Australian wine in 2020.

Analysts say China must also look beyond the US, which is still the top destination for its exports. China is the third-biggest market for US exports, after Canada and Mexico.

Chinese trade with Europe, South East Asia and Latin America has been growing, but it's hard to imagine that the world's two biggest economies can stop relying on each other.

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