Chinese factories are stopping production and looking for new markets as U.S. tariffs bite. The tariffs, imposed after a series of swift announcements by the U.S. government, have been met with reciprocal tariffs from China. This sudden increase is proving to be more disruptive than even the COVID-19 pandemic, according to Ash Monga, founder and CEO of Guangzhou-based Imex Sourcing Services.
He emphasized that small businesses with limited resources might find these sudden costs unbearable. Cameron Johnson, a senior partner at Shanghai-based consulting firm Tidalwave Solutions, noted that factories producing toys, sporting goods, and low-cost goods are particularly hard hit. I know several factories that have sent half of their employees home for a few weeks and stopped most of their production,” he said.
This phenomenon is occurring in key export hubs such as Yiwu and Dongguan, with concerns it may escalate. “There is a hope that tariffs will be lowered so orders can resume, but in the meantime, companies are furloughing employees and idling some production,” Johnson added. Goldman Sachs estimates that between 10 million to 20 million Chinese workers are involved in U.S.-bound export businesses.
The business disruption is forcing Chinese exporters to try new sales strategies to compensate. For instance, Woodswool, an athleticwear manufacturer based in Ningbo, has turned to livestreaming to manage lost business. After launching this sales channel, the company reported 30 orders with gross merchandise value exceeding 5,000 yuan ($690) within a week.
Tariffs disrupt Chinese factory output
“All our U.S. orders have been canceled,” said Li Yan, factory manager and brand director of Woodswool. Previously, more than half of their production went to the U.S., and it will take two to three months to rebuild markets in Europe and Australia.
The venture into livestreaming aligns with efforts by major Chinese tech companies and the central government to support exporters in redirecting their goods to the domestic market. Baidu, for example, has assisted several hundred Chinese businesses in launching e-commerce channels and provided AI tools for virtual human livestreaming, which are digital avatars that automate customer interactions. E-commerce giant JD.com has also pledged significant support, committing 200 billion yuan ($27.22 billion) to purchase Chinese goods originally intended for export and selling them domestically.
However, this is a small fraction of the $524.66 billion in goods that China exported to the U.S. last year. The long-term sustainability of these new practices remains uncertain. Products designed for the U.S. market may not suit Chinese consumers directly, as noted by Ashley Dudarenok, founder of the China marketing consultancy ChoZan.
Moreover, fewer Chinese companies are diverting exports to the U.S. through third countries due to increased U.S. scrutiny of transshipments. Instead, many are focusing on diversifying their market base to Europe and Latin America or shifting production to other countries like India and Southeast Asia. Liu Xu, who runs an e-commerce company selling bathroom products to Brazil, believes that trade with countries like Brazil will be less affected by Sino-U.S. tensions, despite challenges like fluctuating exchange rates and high shipping costs.
Overall, the U.S.-China trade tensions are prompting numerous Chinese companies to reconsider their sourcing and manufacturing strategies, potentially altering global trade dynamics significantly. As companies adapt, there is potential for new opportunities in emerging markets and alternative production bases outside the United States.
Photo by; Erim Berk Benli on Unsplash