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China's industrial sectors at risk as Trump tariffs exceed profit margins
Tariffs now set at roughly 40 per cent compare with average industrial profit margins of about 14.8 per cent in 2024. That gap could prompt more intense price cuts, weakening profits, and — in the worst case — layoffs and potentially a wave of bankruptcies and closures, analysts Chang Shu, David Qu and Maeva Cousin found.
Among industries most at risk are textiles, IT and communication equipment and furniture manufacturing. Of 33 industrial sectors that analysts considered, only five have margins that are wider than tariff rates. They include pharmaceuticals, tobacco and oil and gas extraction.
'Some companies with a heavy dependence on the US market may not survive,' economists led by Chang Shu wrote in a research note Thursday. 'Others will scramble to adapt — accepting lower margins, laying off workers, cutting wages, and potentially flooding the domestic and other foreign markets with cut-price goods.'
The findings underscore the economic risks that tariffs pose to the world's second largest economy at a time when domestic consumption remains sluggish. Trade officials continue to negotiate with US counterparts on a bilateral deal to avoid another escalation in levies; earlier this year, tariffs on China soared to 145 per cent.
Data this week underscored the Asian giant's reliance on industrial production and exports to fuel growth. While gross domestic product advanced 5.2 per cent in the second quarter, outpacing analysts' estimates, it was helped by shipment frontloading and manufacturers cutting prices, both of which are tough to sustain.
Nearly half of China's industrial sectors rely on overseas markets to absorb 10 per cent or more of their output, the BE analysis found, and the US remains the country's largest single-country trading partner. Elevated tariffs could in the long run prompt companies in the US to source goods from other countries, the analysts wrote.
To be sure, there are factors that could cushion the blow to China's industry, including exports to other countries in which goods don't face the same trade barriers. Some products may also be absorbed by domestic demand. Some sectors have also cornered the global market, making it difficult or impossible for US firms to find needed items elsewhere. China's government could also step in with additional fiscal support.
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