Santa enjoys a reprieve, but Chinese suppliers of Christmas goods remain wary about US tariff policy

Santa lamps, reindeer night lights, Christmas tree ornaments and kids' toys. The products that Taizhou International Direct-to-Trade Center took to a recent consumer-goods fair in the city of Ningbo, Zhejiang Province, looked a bit out of place in summer.

But the Christmas season for suppliers starts this time of year, when factories in China fill orders and prepare them for shipment to US ports. The 90-day trade truce agreed by China and the US in Geneva in May, which rolled back the most punitive bilateral tariffs, gave this vital annual trade some welcome breathing space. But 30 percent tariffs still remain on imports of Chinese goods.

Taizhou International's suppliers have resumed production curtailed by the initial 145 percent US tariffs, but the trade center knows that nothing is certain anymore. It's looking for new clients, including Eastern Europe, outside its traditional markets.

"The tariff reduction is not permanent, and we expect tariffs could rise again at any time," Zhou Dan, high commissioner of the center, told China Biz Buzz. "After the Geneva agreement, our factories were finally back filling orders, but we don't know what might happen in the second quarter, so we need to look for new clients outside the US."

The center is not alone in its wariness. Chinese companies affected by the tariffs and relieved to be clearing inventory backlog under the temporary truce remain relatively pessimistic about the future of China-US trade.

"Routinely, orders for Christmas decorations come in March and April, and shipment starts from August or September," said Zhou. "Production lines mostly stopped in April, with orders curtailed by the high tariffs."

The fate of the temporary truce isn't the only worry. Exporters are now facing soaring shipment fees. From mid-May to the first week of June, container rates from China to the US jumped on high demand by businesses seeking to expedite shipments while the truce is in effect.

According to price reporting agency FreightWaves, the spot rate for a 40-foot container to the US West Coast rose 8 percent since early May to about US$2,805. Shipments to US eastern ports averaged US$4,500 per 40-foot container.

Xeneta, a global freight rate benchmarking platform, said its data showed slight moderation in rates in the first week of June but said they remain elevated. Rates for 20-foot containers hovered around US$3,400, and for 40-foot containers, the rate was near US$4,550.

Some sellers are holding back shipments to the US, hoping for rates to fall.

Mendelan, a Shenzhen-based company that makes electric massagers, is not taking any chances. The company is participating in trade fairs around China hoping to sell inventories originally aimed at the US market to other buyers.

"After the tariffs were imposed, some of our clients asked for refunds of order deposits, then never came back to us when tariffs were lifted," said a Mendelan spokesman who identified himself only by the surname Zhao. "It feels that both we and our clients are in a 'wait-and-see' posture. And now, we have to sell massagers originally priced at US$300 for as little as US$21."

Even those not so severely impacted by the tariff war see a Sword of Damocles hanging over their heads.

Ningbo-based K&B Home Products, a home décor and accessories supplier to Walmart and other US hypermarket chains, told China Biz Buzz that, up to now, their clients have been shouldering the extra costs of tariffs and haven't reduced orders. But the company isn't certain how long that will last.

The South China Morning Post reported that Walmart and other major US retailers like Target and Home Depot have urged their Chinese suppliers to resume shipments and agreed to absorb tariffs, but those negotiations haven't been finalized. There have been reports that some US retailers may demand Chinese suppliers to share the cost of tariffs.

"We haven't heard anything from Walmart yet, so we don't know what the future holds," said Xu Yaling, deputy general manager of K&B. "About 20 percent of our business is with the US, and if Walmart decides we should share the burden of tariffs, it will heavily impact us. However, I don't think the US or our clients are ready to say good-bye completely to Chinese manufacturing, at least not in the foreseeable future."

Industry analysts said they understand the underlying pessimism of Chinese suppliers because the temporary rollback of some tariffs isn't a definitive end to the trade war.

"There is uncertainty, and the risks associated with tariffs remain high," said Wang Jia, assistant research professor with the Institute of Economics at the Shanghai Academy of Social Sciences. "The temporary tariff reduction has not fundamentally altered the nature of trade friction between China and the US, and high tariffs are likely to return when the truce ends."

Wang, however, said he believes future tariffs may be tiered, with higher tariffs on strategic products such as semiconductors, electric vehicles and high-end medical equipment, while lower-value consumer goods like clothing and furniture may see lesser duties.

"Companies must prepare and continue seek market diversification and optimize their supply chains," Wang said. "It is no going back to the start."