Finance
How China’s exporters are scrambling to mitigate the impact of punishing U.S. tariffs
A large number of machinery and vehicles are ready for shipment at the dock of the Oriental Port Branch of Lianyungang Port in Lianyungang, China, on September 27, 2024.
Costfoto | Nurphoto | Getty Images
BEIJING — U.S. has raised tariffs on Chinese imports to triple digits. For China’s exporters, it means raising prices for Americans while accelerating plans to diversify operations — and, in some cases, stopping shipments entirely.
U.S. consumers could lose access to certain products in June since some American companies have halted their plans to import textiles from China, said Ryan Zhao, director at Jiangsu Green Willow Textile.
For products that continue to be shipped from China, “it’s impossible to predict” by how much their prices will rise for U.S. consumers, he said Thursday in Chinese, translated by CNBC. “It takes two to four months for products to be shipped from China’s ports and arrive on U.S. supermarket shelves. In the last two months tariffs have climbed from 10% to 125% today.”
The White House has confirmed the U.S. tariff rate on Chinese goods was effectively at 145%. Triple-digit tariffs essentially cut off most trade, a Tax Foundation economist told CNBC’s “The Exchange.”
But U.S.-China trade relationship won’t change overnight, even as American companies that source from China are looking for alternatives.
Tony Post, CEO of U.S.-based running shoe company Topo Athletic, said he is planning to work more with suppliers based in Vietnam in addition to his existing China suppliers.
When the initial two rounds of 10% U.S. tariffs were imposed this year, he said his four China suppliers offered to split the cost with Topo. But now “more than the cost of the product itself has been added in import duties just in the last few months,” he said.
“I’m going to eventually have to raise prices and I don’t know for sure what impact that is going to have on our business,” Post said. Before Trump started with tariffs, Post predicted nearly $100 million in revenue this year — primarily from the U.S.
Economic fallout
Hopes for a U.S.-China deal to resolve trade tensions have faded fast as Beijing has hit back in the last week with tit-for-tat duties on American goods and wide-ranging restrictions on U.S. businesses.
With steep tariffs, China’s shipments to the U.S. will likely plunge by 80% over the next two years, Julian Evans-Pritchard, head of China economics at Capital Economics, said late Thursday.
Goldman Sachs on Thursday cut its China GDP forecast to 4% given the drag from U.S. trade tensions and slower global growth.
While Chinese exports to the U.S. only account for about 3 percentage points of China’s total GDP, there’s still a significant impact on employment, Goldman Sachs analysts said. They estimate around 10 million to 20 million workers in China are involved with U.S.-bound export businesses.
As Beijing tries to address already slowing growth, one of its strategies is to help Chinese exporters sell more at home. China’s Ministry of Commerce said Thursday it recently gathered major business associations to discuss measures to boost sales domestically instead of overseas.
But Chinese consumers have been reluctant to spend, a trend reinforced by yet another drop in consumer price inflation, data released Thursday showed.
“The Chinese domestic market can’t absorb existing supply, much less additional amounts,” said Derek Scissors, senior fellow at the American Enterprise Institute think tank.
He expects Beijing could follow its playbook of making concessions to the U.S., dump products on other countries, subsidize loss-making firms and let other businesses die. Diverting goods to other countries would likely increase local trade barriers for China, while subsidies would exacerbate debt and deflationary pressures at home, Scissors said.
China has made boosting consumption its priority this year and has expanded subsidies for a consumer trade-in program focused on home appliances. Tsinghua University professor Li Daokui told CNBC’s “The China Connection” Thursday that he expected measures to boost consumption would be announced “within 10 days.”
Hard to replace
While the U.S. government has strived over the last several years to encourage manufacturers to build factories in the country, especially in the high-tech sector, businesses and analysts said it won’t be easy to develop those facilities and find experienced workers.
“We cannot obtain comparable equipment from sources in the U.S.,” Ford said in a U.S. tariff exemption request last month for a manufacturing tool used to make its electric-vehicle battery cells. “A U.S. supplier would not have the specific experience with the handling and heating process.”
Tesla and other major corporations have also filed similar requests for exclusion from U.S. tariffs.
A large chunk of goods can mostly be sourced from China alone. For 36% of U.S. imports from China, more than 70% can only come from suppliers based in the Asian country, Goldman Sachs analysts said this week. They said that indicates it will be hard for U.S. importers to find alternatives, despite new tariffs.
On the other hand, just 10% of Chinese imports from the U.S. rely on American suppliers, the report said.
The world’s second-largest economy has also sought to move into higher-end manufacturing. In addition to apparel and footwear, the U.S. relies on China for computers, machinery, home appliances and electronics, Allianz Research said last week.
Diversification
China was the second-largest supplier of U.S. goods in 2024, with imports from China rising by 2.8% to $438.95 billion last year, according to U.S. Census Bureau data. Mexico climbed to first place starting in 2023, while U.S. imports from Vietnam — which has benefitted from re-routing of Chinese goods — more than doubled in 2024 from 2019, the data showed.
Several large Chinese textile companies have been moving some production to Southeast Asia, Green Willow Textile’s Zhao said.
As for his own company, “this year we are developing customers in Southeast Asia, Latin America, the Middle East and Europe in order to reduce our reliance on the U.S. market,” Zhao said, noting the company could not bear the cost of the additional tariffs given its already low net profit of 5% last year.
China’s trade with Southeast Asia has grown rapidly since 2019, making the region the country’s largest trading partner, followed by the European Union and then the U.S. in 2024, according to Chinese customs data.
Chinese President Xi Jinping is set to visit Vietnam on Monday and Tuesday, followed by a trip to Malaysia and Cambodia later in the week, state media said Friday, citing China’s foreign ministry.
“I suspect that we will have a bit of a whack-a-mole situation where there will be new rules coming to crack down on Chinese content in products that ultimately end up in the United States,” Deborah Elms, head of the Hinrich Foundation, said on CNBC’s “The China Connection” Thursday.
Trump on Wednesday paused plans for a sharp hike on tariffs for most countries, including in Southeast Asia, but not for China.
That pause has offered a brief relief to people like Steve Greenspon, CEO of Illinois-based houseware company Honey-Can-Do International, whose company has moved more production from China to Vietnam since Trump’s first term.
“The pause allows us to continue with business as usual outside of China, but we cannot make any long term plans,” said Greenspon. “It’s hard to know how to pivot as we don’t know what will happen in 90 days.”
The economic realities could push the U.S. and China toward a deal, some analysts predict.
Gary Dvorchak, managing director at Blueshirt Group, pointed out Thursday that the latest tariffs have only been announced in the last several days and he expects ratcheting up of duties is likely posturing ahead of a deal — potentially as soon in the next few days.
Despite aggressive rhetoric, he thinks both countries have much to lose if the tariffs are made permanent. To have the U.S. cut off from Chinese goods would plunge China into a deeper depression, he said.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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