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CINDY YU

China’s hat king shows the futility of Trump’s trade war

Like others, the exporter of US baseball and F1 caps was shielded even before the US president’s tariff U-turn

The Times

Three months. That’s how long it takes for the average Chinese product to go from order to American shelves. It was also how long Mr Mao, aka “the hat king”, bet me it would take for President Trump to pull back on tariffs. In the end, it was only six weeks.

Mao is just the kind of canny Chinese businessman that Trump is out to thwart. His empire consists of six factories, mainly producing high-end baseball-style caps for American football and Formula 1 teams (he’s done Maga merch too but says those orders mostly go to lower-quality suppliers in Yiwu, China’s export capital). Business has been good. When we met for lunch in an elegant Suzhou restaurant last month Mao wore a jade pendant the size of a plum and held court with a dozen business acolytes (they are the ones who call him “king”).

Mao’s bravado was echoed by other exporters I came across in China last month. I wondered if they weren’t all in denial. Did they not understand the seriousness of Trump’s intent to repatriate jobs to America? Could a trade war really fizzle out so quickly? Beijing’s own reaction had made things much worse for Chinese companies in a matter of days, bidding the tariffs up to 145 per cent. What could your average Chinese merchant do but hope for a better world in three months’ time?

But the stand-off ended even sooner than they expected. Monday’s announcement in Geneva of a 90-day ceasefire took US tariffs on Chinese goods down to 30 per cent and Chinese tariffs on American goods down to 10 per cent. Trump later told reporters he didn’t expect tariffs to return to such high levels again.

Who blinked first? Like kids one-upping each other on the playground, both sides have said the other side asked for talks first. Both Trump and President Xi care about saving face in this showdown.

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In reality, Beijing has suffered more than it wants to admit. Export orders for all Chinese goods fell in April to the lowest monthly level since December 2022, the tail end of Covid, and Goldman Sachs predicted that between ten million and 20 million Chinese jobs could be at risk. As Trump introduced exemptions for some electronics, China quietly did similar for some semiconductor, medical and aviation parts.

But Beijing has one particular strength: its pain threshold. Whereas the turmoil in the US was unfolding publicly and in real time, with warnings from retail executives, the Fed, the markets and the media, all putting pressure on Trump, President Xi doesn’t have the same problem.

The bravado I came across may have been wishful thinking, but it reveals how much even private individuals in China can get on board a national agenda. A narrative of China vs the American bully quickly formed, made more inspiring by the idea that Beijing was leading this fight for the sake of the rest of the world, too. This is familiar Chinese Communist Party lore — on Chinese social media, multiple state media outlets posted a video of Mao Zedong promising to “never yield” against America in the Korean War. The trade war is a matter of national pride, or even survival.

And for those reluctant to join in, there’s always the stick. Domestic critics of China’s actions have been censored online, including one deputy director at the Chinese Academy of Social Sciences, who equated Beijing’s retaliation to saying, “If you’re going to beat your wife, then I’m going to beat my wife too”. China has also restricted its institutional investors from selling stocks, limiting the market backlash.

Then there’s the question of whether the tariffs have really hurt the right people. Mr Mao had long moved parts of his production to Haiti, Kenya and Laos. His Chinese factories supply only Asia, while the American market is supplied from Haiti. The Haiti site opened as early as 2014 after an American client tipped him off about coming protectionism. The client wanted to keep Mao’s costs low, for their own sake too. Caps made in Mao’s Haiti factory say “Made in Haiti”, even though most things about their production, from the raw materials to the floor managers and owner, were made in China.

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Many more Chinese businesses moved their operations abroad after the trade war of the first Trump presidency. Vietnam is a popular destination: its exports to the US almost tripled between 2018 and last year, while its imports from China also multiplied in the same period. Increasingly, the world has become China’s factory.

Trump clearly hoped to close these loopholes with global tariffs, but that is already proving difficult.

So in the end, what has the palaver of the past six weeks achieved? China and the US have agreed to regular talks, including on how to stifle the illegal trade in fentanyl. There is a UK trade deal that Beijing is unhappy about, as it might cut out Chinese components and investments. But much — perhaps even all — of this could have been achieved without the turbulence we’ve seen. If China can show it is cracking down on the export of fentanyl precursors, Beijing could get an even better deal and end up facing the same 10 per cent tariffs as the UK, a US ally.

The biggest loser of all seems to be America’s reputation. It has lost credibility — in the eyes of a competitor such as China, which now has a measure of Trump’s fickleness and concludes that he is vulnerable to market pressure; and in the eyes of the world where, to many, China now seems the more stable power.

After Geneva I texted the hat king to concede his win. He was delighted.

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