The gloves are already off

China-U.S. trade war: The gloves are already off, but will Donald Trump’s favorite MAGA hats be next?

By SARAH ZHENG

This story is being published by POLITICO as part of a content partnership with the South China Morning Post. It originally appeared on SCMP on July 19, 2018.

The gloves might already be off in the trade war between Beijing and Washington, but it is Chinese hat manufacturers — including those that produce the bright red “Make America Great Again” caps much loved by Donald Trump supporters — that now fear they will be its next casualties.

Last week, the U.S. Trade Representative’s Office revealed a list of $200 billion worth of Chinese imports that it is threatening to subject to 10 percent tariffs — including “hats and headgear” made from cotton, fur, vegetable fibers or paper yarn.

China’s garment industry has been under pressure for some time, as the global supply chain has shifted to low-cost manufacturing bases in Southeast Asia. Now it looks set to become embroiled in a punishing trade dispute between the world’s two largest economies.

For Zhenjiang Kimtex Industrial Company in eastern China’s Jiangsu province, the U.S. accounts for 40 percent of its sales, or about 3 million yuan ($445,000) a year. While it mostly manufactures winter hats and scarves, in 2016, it also produced hundreds of the “Make America Great Again” baseball hats that were de rigueur for Trump fans.

George Jing, a manager at the company, told the South China Morning Post that he was keeping a close eye on the developing dispute.

“We are aware of the trade war, and we are following which items will be affected by the tariffs,” he said. “If the tariffs are placed on our importers in August, then their costs will rise, and the prices of our products will go up.”

U.S. media reported earlier that sellers of the “Make America Great Again” caps — which are available, among other places, via the U.S. president’s official website — were stockpiling them while they waited for a decision on the tariffs.

David Lassoff, manager of the California-based IncredibleGifts, told ABC News that if he was forced to switch to an American supplier because of the tariffs on Chinese imports, he would have to raise the retail price of the caps he sells to at least $20 — up from the current price of $9 to $12.

“There might be a limited quantity [of hats] in the future,” Lassoff said. “We’re trying to make sure we have enough in stock now, so if things change, we’re prepared.”

Hebei Dishixiao Gloves Manufacturing Company, which exports hats, scarves and gloves from northern China’s Hebei province — including the ubiquitous red Trump caps — said that its clients in the U.S. would also have to raise their prices to cover the effect of the new tariffs.

Although the tariffs on hats have yet to take effect, east China-based manufacturer Qingdao Jeff Help You Industry & Trade Company said it had already felt the impact.

Before the 2016 U.S. presidential election, the company manufactured a “considerable volume” of “Make America Great Again” caps, but no longer sells Trump-related apparel.

“The U.S. used to be a major market, but business is hard now,” saleswoman Susan Su said. “In recent months, it has been because of this China-U.S. trade war. Of course, we will need to reassess our markets if it continues.”

Garment-maker Dongguan Xinyu Apparel Company, which mostly produces caps for export to the U.S. and Europe, is in no doubt about how damaging the tariffs could be, saying it would “definitely” have an impact on its business.

Based in Dongguan, a south China city at the heart of the country’s manufacturing base, Xinyu is listed on several Chinese e-commerce platforms as a vendor of Trump baseball caps, and not only in classic red, but also in white and black.

“If it [the trade war] continues, we will have to move our markets in other directions,” said a company representative surnamed Xie.

Nick Marro, an analyst at The Economist Intelligence Unit, said American companies, particularly in low-end manufacturing sectors, had been diversifying out of China for years over concerns of rising labor costs, and the tariff threat would only accelerate that trend.