Chinese-owned small businesses in Chicagoland face tough winter as trade war escalates


Source: Lao Sze Chuan

Lao Sze Chuan, an Evanston restaurant that cooks authentic Sichuan province cuisines and imports ingredients from China, face profit losses as the U.S.-China Trade War escalates.

Penelope Zhang, Reporter

The Hunan Spring restaurant in Evanston was once a bustling business with more than 150 customers per day. Manager Quan Shun Chen told the Daily in Chinese waiters and managers did not even have time to rest because there were always orders to be taken, dishes to be delivered, checks to be given out and profits to be collected.

However, the lively spirit has left the restaurant. Since early May, it has been experiencing a decrease in profit.

The struggle of the Hunan Spring Restaurant stems from the increase in tariffs to 25 percent in May from the previous 10 percent, as issued by President Donald Trump’s administration, escalating the U.S.-China trade war. Chen said his restaurant, which cooks classic Chinese dishes, needs specific seasonings, spices and canned foods from China — these ingredients are not available in the United States.

The burden of these tariffs, which apply to a slew of Chinese products ranging from food to machinery for both retail and industrial, falls on the businesses. Though the Trump administration hopes the tariffs increase job opportunities in the U.S., decrease Chinese imports and eliminate the trade deficit, the increased prices hit Chicagoland businesses especially hard.

Illinois has a low number of manufacturers — the industry makes up only 12.7 percent of the state GDP. This means businesses in the state cannot easily turn to U.S.-based companies for their goods because it costs more to transport from other regions.

The Hunan Spring restaurant has experienced a 20 percent drop in its revenues compared to last year, with significant decreases starting in May when Trump imposed higher tariffs. Chen told the Daily in Chinese a lot of small restaurants have shut down due to negative economic profit, while his business is making zero economic profit.

Hunan Spring is not the only Chicagoland restaurant affected by the trade war. Lao Sze Chuan, a large-scale Evanston restaurant that makes Sichuan food, also faced a 5 to 6 percent decrease in profit.

The restaurant’s manager, Eason Dong Yi, told the Daily in Chinese Sichuan food requires certain sauces like yellow lantern chili paste and fermented bean sauce. Before the trade war, some of these products could be purchased directly from U.S. firms that import from China. But now these products are no longer available, so Lao Sze Chuan has to buy ingredients on Chinese websites at a much higher price.

Chen and Dong both said they have been looking for alternatives to reduce the economic impact of the trade war. Dong did not increase prices, while Chen said he is now in a dilemma regarding whether to raise prices in response to higher costs.

“We wanted to raise our price to make sure we are still making a profit. But our customers complain about high prices and we don’t want to lose the little number of customers we have to competitors,” Chen told the Daily in Chinese.

Chen told the Daily in Chinese with the trade war going on, all the restaurants are becoming increasingly competitive.

“This is just like a race to see who can survive until the end,” Chen told the Daily in Chinese. “I hope there is a chance to revive our business as we are in a dangerous state right now.”

Chen added he is brainstorming new ways to attract customers and is even considering changing the main dishes so there is less reliance on ingredients from China. Dong added changing ingredients in dishes goes against their goal of making authentic Sichuan food.

“The fermented bean sauce is the soul of Sichuan cuisine,” Dong told the Daily in Chinese. “We need it for a lot of dishes and it is unlikely that we could find any alternatives to it. We cannot make special orders here as the sauce needs specific climate, humidity and skills to be made.”

Besides restaurants, Chinese industrial and retail businesses in Chicagoland were also hit by tariffs.

Yang Fang, manager of the Home Business International Company, which sells accessory parts of household electrical appliances online to Chicago and Naperville residents, said her firm needs to import all products from China because they are not manufactured in the U.S.

“We import accessory parts from China and sell them to American factories that will assemble them together,” Yang said. “With tariffs raising our costs, we had to increase prices, which is bad as the factories no longer want to buy our products and we had a 15 percent drop in profit.”

Yang added that even if they can find manufacturers in the U.S., the higher cost would pose a financial burden.

Yang said tariffs have negative implications for American customers. Businesses like hers might have no choice but to raise prices, which also translates to higher costs for factories that purchase directly from her.

“This is why I think the trade war will not continue for a very long time,” Yang said. “It hurts us as well as American consumers. What’s the point in having this trade war going on when a lot of people are negatively affected?”

However, Yang said if the situation does continue, the only thing she can do to sustain her business is to cut workers’ wages.

“If that is not enough, we will start sacking workers. We may even consider moving our manufacturing companies away from China to the U.S. if revenues continue to fall,” Yang said.

Yang said moving companies is their last resort because of high labor costs. Also, relocating a company to a foreign country is time-consuming and may even affect their sales if goods are not manufactured efficiently.

Fei Wong — manager of Henubee, a company that sells LED lights imported from China directly to American consumers — faces similar circumstances with a 10-15 percent drop in profits.

Gao Chi Hai, who has a Ph.D. in economics from Nankai University in China, said businesses need to find new ways to produce their goods rather than depending on imports.

“Chinese-owned businesses here in the Chicagoland area should consider forming an association,” Gao said in Chinese. “It can be difficult for one firm to make a special order to a manufacturing company to make different goods, but as a group there is a possibility.”

Oliver Cui, senior economist and vice president of the investment company China Bridge Capital, said the trend of Chinese-owned businesses going downhill following rising tariffs is unavoidable.

He said there is no end in sight for the trade war and tensions could continue to rise if China retaliates. Trump also recently said the U.S. would impose tariffs on another $300 billion of Chinese imports on September 1.

“In the G20 summit last month, President Trump said tariffs will not go higher,” Cui said. “In the meantime, small businesses need to think of ways to innovate and stand out from their competitors. This may be the coldest and longest winter for these Chinese firms that we all hope will pass soon.”

Email: [email protected]
Twitter: @Penelop94849835