Chinese exporters have bigger worries than tariffs as summit nears

Chinese exporters spent the past year scrambling to diversify away from the U.S., moving supply chains overseas and targeting new markets, including the Middle East, as punishing tariffs upended their business models. 

Now the Iran war has heaped fresh pressure on those businesses, choking critical shipping lanes, triggering a historic energy shock, and threatening to crimp global demand for Chinese goods across the board.

As U.S. President Donald Trump and his Chinese counterpart Xi Jinping prepare to talk business and politics later this week, exporters appear less concerned about tariffs and more about hostilities in the Middle East.

“They all want the war to stop,” said Wang Dan, China director at Eurasia Group, who has been speaking with exporters across the country. Many of them barely mentioned tariffs when asked about their expectations from the summit, she added.

“The focus is now on the duration of the Iran war, as they are worried about orders from overseas markets,” Wang said. Some businesses have already drawn up contingency plans to downsize in the second half of the year if the conflict drags on, Wang said.

Heading into the summit, Beijing and Washington will likely reaffirm their shared intention to reopen the Strait of Hormuz and restore stability in the region, said Yue Su, principal economist for China at Economist Intelligence Unit. But maritime standoffs and stop-and-go negotiations will likely drag on, Su added.

The supply chain disruption caused by the Iran war is inflicting more pain than the erratic U.S. tariffs that exporters had grappled with for much of the past year.

Take the case of Bryan Zheng, founder and chief executive of Shenzhen-based cycling helmet maker Livall Tech. He has been forced to rely on costly air freight to ship products to Europe after maritime delays through the Strait of Hormuz stretched shipment to around 50 days — which would otherwise take 30 to 40 days.

Port congestion across Asia has also sent freight rates soaring. Shanghai and Ningbo are among the ports experiencing significant backlogs, with labor shortages and capacity constraints slowing container movement on Asia-Europe and Mediterranean trade routes.

Rail freight, a faster and cheaper alternative, was blocked after Zheng’s smart helmets were classified as sensitive dual-use goods, given the active conflict zones along the route.

A peace deal reopening the strait would be “a huge net positive for everyone,” Zheng said, though he cautioned any potential ceasefire brought about by the meeting between Trump and Xi could prove short-lived. Higher tariffs, by contrast, can be managed by passing costs on to consumers, Zheng said.

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