Tariffs Impact on Prices: Shenzhen Startups Look Abroad
The clearest sign of how the tariffs impact on prices — and on business strategy — is hanging over the streets of Shenzhen this week. Billboards along the city's main roads are welcoming President Donald Trump and other world leaders to next week's Asia-Pacific Economic Cooperation forum with a slogan that reads like a sales pitch for the whole city: "Gather in Shenzhen, Witness the Wonders." Driverless taxis weave through the traffic below, and delivery drones carry coffee to nearby customers. Shenzhen, the southern Chinese city hosting APEC on November 18 and 19, wants the world to see it as the future of manufacturing — and its youngest companies are betting that future still depends on customers overseas.
That bet is the subject of a new Reuters report from the city, based on interviews with executives at seven startups and a review of municipal economic data. Despite duties that have at times topped 100 percent on Chinese goods entering the United States, a sluggish home market, and growing complaints about a flood of Chinese exports, many of Shenzhen's next-generation firms are doubling down on selling abroad — aiming at wealthier buyers in the United States, Europe and beyond. Their reasoning is simple: customers overseas still have more money to spend, and they are still willing to spend it.
Tariff News: The Duties Behind Shenzhen's Export Bet
No story about selling Chinese goods abroad can be told without the tariff news of the past two years, and the duties facing Shenzhen's exporters have swung wildly. Charges on Chinese goods entering the United States climbed to 145 percent in April 2025, a level few exporters could absorb, before a truce between Washington and Beijing brought them back down. Then, in February of this year, the US Supreme Court struck down the emergency tariffs President Trump had imposed — only for a separate 12.5 percent levy to be added in July.
The latest turn has been kinder to sellers. Shipments from China to the United States rebounded by nearly 40 percent year on year in September, after a meeting between Trump and Chinese leader Xi Jinping eased tensions. On Monday, Beijing announced that the trade truce with Washington — due to expire on November 10 — would be extended by two months. The extension runs into January, when the fragile arrangement comes up for renewal again, and the APEC meeting in Shenzhen will be the first big test of whether the calm holds.
Europe brings its own tariff hurdles, and they have already forced some Shenzhen firms to rearrange their production. Combined duties of almost 80 percent from the European Union led Tarran, a maker of electric cargo bikes, to move production of its frames, batteries and controllers to Southeast Asia, where the levies are lower. Smart components and most raw materials still come from China, but final assembly now happens elsewhere. The shift carries its own cost, and it lands directly on shoppers. "These movements of manufacturing actually increase cost to the products and raise the price to end users," Tarran founder Ben Guo told Reuters. It is how the tariffs impact on prices in practice: duties push production abroad, add costs, and the buyer pays the difference. XPolar founder Chen Congyi told Reuters the barriers are a real cost — but every competitor selling into the American market faces the same ones.
China's $1.04 Trillion Trade Surplus and the AI Export Engine
The backdrop to all of this is a trade surplus so large it has become a political issue in its own right. China's trade surplus topped $1 trillion in the first 10 months of 2026, according to customs data released on Tuesday, and it is on track to beat last year's record. The cumulative surplus reached $1.04 trillion between January and October, crossing the trillion-dollar mark a month earlier than in 2025, when the full-year figure came in at about $1.19 trillion — the second consecutive year China has passed $1 trillion.
The October figures show the engine still running hot. Exports rose 35.2 percent in October compared with a year earlier, only slightly slower than the 36.3 percent surge in September and ahead of the 33.5 percent increase economists had expected. Imports grew even faster, climbing 41.6 percent, which narrowed the monthly surplus to $105.3 billion from $133.5 billion in September. October exports were worth $412.3 billion against imports of $307.1 billion.
Much of the strength comes from the global race to build artificial intelligence infrastructure, which has buoyed sales of Chinese high-technology products and helped offset weak demand at home. But the size of the surplus is sharpening tensions with trading partners. The European Union, which struck a deal with Beijing in October to cap imports of Chinese hybrid cars, has said it will propose curbs on other sectors as well. China's surplus with the United States edged down to $32.71 billion in October, but the overall imbalance keeps the trade dispute at the top of the APEC agenda.
Beijing rejects the charge that it is deliberately flooding world markets, dismissing accusations of industrial overcapacity and of keeping the yuan undervalued to undercut competitors. Critics are unconvinced: the Peterson Institute for International Economics estimates the yuan is about 20 percent undervalued, a gap that would reinforce China's price edge. The argument will not be settled in Shenzhen next week, but it will hang over every meeting there.
Inside InnoX, the Incubator Aiming Its Startups Abroad
The clearest window into Shenzhen's export bet sits in Liuxiandong, a district whose name translates, loosely, as the cave where immortals linger. There, in the shadow of drone giant DJI's skybridge-connected towers, sits InnoX, a hardware incubator where the next generation of Shenzhen companies is being built. Of the more than 120 startups based at the incubator, around 80 percent are working on projects aimed at foreign customers, according to co-founder Carol Yu. The products being dreamed up there include portable power stations, exoskeletons, sports-recovery devices, electric jet skis and scalp-care gadgets.
"The ability to pay and the willingness to pay are still much stronger in overseas markets," Yu told Reuters, explaining why so many of her founders look outward rather than trying to win over shoppers at home. Fierce price competition has squeezed the margins on domestic sales, and a long property crisis has left consumers cautious about spending. Selling abroad, even with tariffs attached, can simply be the more profitable choice.
InnoX itself is a product of a newer, more state-directed phase of Chinese economic growth. The incubator was set up in 2021 under a Shenzhen city plan, and its other co-founder is a former chairman of DJI, the drone maker that has become the city's most famous export success. Municipal authorities have sold plots in Liuxiandong to companies working in robotics, aerospace and cybersecurity, and state-backed projects in the area now total more than 60 billion yuan, about $8.7 billion. Yu describes the model as a public-private partnership: the government funds training for talented workers and co-invests in early funding rounds, after which private investors take over. Founders say the local government also helps with rent, housing and hiring.
Why Founders Still Say Shenzhen Is the Place to Start
For all the talk of tariffs and trade wars, the founders Reuters spoke to kept coming back to a simpler reason for being in Shenzhen: nowhere else lets a hardware startup move as fast. The city's rise began in 1980, when the leader Deng Xiaoping designated it one of the People's Republic's first special economic zones. Lighter regulation than elsewhere in China, plus investment from neighbouring Hong Kong, turned a semi-rural backwater into a hub for garments and toys, and the factories later moved upmarket into high-end electronics. The supply chain deepened when the manufacturing giant Foxconn began assembling iPhones and other devices there for foreign brands in the 2000s.
That concentration of suppliers is still the city's biggest draw. Li An, founder of Anavi, which makes electric jet skis, sources parts from Shenzhen and four other Chinese cities — but he told Reuters that Shenzhen is the best place for a startup going from "zero to one," the hard step of turning an idea into a first working product. "The suppliers around you are more willing to support you," he said. The incubator helps on top of that, giving founders access to prototyping labs and a pilot production line, introducing them to suppliers and taking them to trade shows overseas.
The results can be seen in the sales figures of the smallest firms. Rootique, a scalp-care company based at InnoX, has sold about 10,000 of its $148 devices, and more than half of those sales went to customers in the United States. Its founder, Denise Wu, put the strategy bluntly: "We're not selling in China." For a young company, the American consumer is not a distant hope but the core market. Shenzhen's appeal, in her account and in others, is not that it is cheap — it is that everything a hardware founder needs is within reach.
Economy News: Weak Spending at Home Pushes Firms Overseas
The export focus is also a response to trouble at home. Cutthroat price competition has compressed the margins on goods sold inside China, while the property crisis has crimped household spending. In Shenzhen itself, retail sales grew just 2.3 percent between January and September — underperforming the municipal government's own target and far behind the 18.5 percent increase in the city's exports over the same period. The gap between what the city sells abroad and what its own residents buy is the clearest possible picture of an economy leaning on foreign demand.
"Domestic consumption has been downgraded," Yu said, using a phrase common in China for shoppers trading down to cheaper goods. Richard Yarrow, a fellow at Harvard University's Asia Center, told Reuters that officials chasing growth "have to look to overseas markets" — but the tools used to support export industries also divert resources away from households. Cheap business loans depend on low interest rates, which mean households earn less on their savings and have less money to spend, while encouraging companies to chase market share abroad also hits their profits and payrolls. The export engine runs on trade-offs, and the bill shows up in the spending power of ordinary Chinese families.
What Happens Next
The APEC leaders' meeting in Shenzhen on November 18 and 19 will be the first real test of the city's pitch. Trump is due to attend, and his meetings with Xi — and possibly with Vladimir Putin on the sidelines — will set the tone for the trade truce that now runs into January. Watch first for how long the tariff calm lasts, and whether the two-month extension announced this week turns into something more durable. Watch second for what the European Union does next: its October deal capping Chinese hybrid car imports was only a first step. And watch third for the numbers — if China's surplus beats last year's record, as analysts expect, the pressure from trading partners will only grow.
Source: Reuters