Trade War Causes Foreign Companies in China to Face Double Tariffs

Some foreign companies operating in China are even more affected by Trump’s trade war, as they are required to pay a 125% tariff on importing components and then a 145% tariff on exporting their finished products to the United States.

According to official data, foreign companies and joint ventures with foreign capital account for nearly 30% of China’s total trade, highlighting their tariff exposure.

Major American companies like Apple and Tesla and many smaller manufacturers rely on China as a manufacturing base. These companies often import raw materials or components from the United States to assemble products that are later exported.

According to economists, this leaves them exposed to paying tariffs on the same goods in the U.S. and China after Trump raised tariffs on all Chinese exports to 145%, prompting retaliatory measures from Beijing.

“Foreign companies are being squeezed in the Chinese market,” said Heiwai Tang, director of the Asia Global Institute at the University of Hong Kong. “If they import, they pay Chinese tariffs. When they export back to the U.S., they pay American tariffs. They are impacted twice.”

According to data from China’s General Administration of Customs and calculations by the Financial Times, foreign-owned or partially foreign-owned companies in China exported US$980 billion worth of goods from their bases in 2024, more than 25% of the total, and imported US$820 billion, about 35% of the total. China recorded a record trade surplus of nearly US$1 trillion in 2024.

China’s export machine was built largely on wholly or partially foreign-owned companies, including firms from Hong Kong and Macau, which sought to leverage China’s massive, low-cost labor force for manufacturing.

Foreign-invested enterprises, as they are known in China, accounted for 55% of the country’s total trade in 2008. That share has fallen over the years as China pursued a policy of greater industrial self-sufficiency. Nevertheless, according to government figures, foreign-invested enterprises still made up 29.6% of trade in dollar terms in 2024.

Overall, they contributed only 16% of China’s total trade surplus in 2024, as the export volume from foreign companies was offset by their even larger share of total imports.

“Many foreign companies operating in China that are not American but still rely on American inputs are also being affected,” said Michael Hart, president of the American Chamber of Commerce. According to Hart, China’s Ministry of Commerce is considering granting tariff exemptions to specific sectors.

China does provide some tariff exemptions for companies that import components and raw materials to manufacture products intended for re-export under what is known as “processing trade.” Some prominent American manufacturers, such as cellphone and electronics producers, also managed to secure temporary exemptions from Trump.

However, amid the trade war, many foreign companies, especially smaller-scale manufacturers, may still find it prohibitive to export from China.

Jacob Rothman, CEO of Velong Enterprises, a China-based manufacturer of kitchenware and household products sold by American retailers such as Walmart, said he imports Tritan, a type of plastic, from U.S.-based Eastman.

“We are hit with double tariffs on products made with this material,” Rothman said. “Once when importing the material, and again when exporting the finished products.”

According to Rothman, China grants a tariff exemption if the final product is exported back to the U.S. within a certain period. However, the exemption is not granted if the product is exported to other countries.

Economists warn that the trade war could further reduce foreign direct investment flows into China. According to the Ministry of Commerce, in 2024, foreign direct investment in China fell by 27.1% in yuan terms.

“Those entering China to serve the domestic market may still [want to] come. But suppose the goal is to serve other markets, especially the U.S. In that case, you will be heavily impacted,” said Qiu Dongxiao, head of the economics department at Lingnan University in Hong Kong. “So you need to reconsider your global strategy.”

Source: Valor

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