A clothing manufacturer in eastern China's Zhejiang Province recently received a request from a U.S. buyer to temporarily hold shipments scheduled for this month. This is because it has become difficult to accurately calculate the final price due to the irrational tariff bombs exchanged between the U.S. and China. The manufacturer noted to Bloomberg that it is preparing for a significant drop in orders that will materialize in the future. Even if the hostilities between the two countries cease, tariffs will inevitably be higher than before, making it difficult to offer discounts substantial enough to offset that.
Small and medium-sized manufacturing factories that support exports from China are gradually coming to a halt. Since U.S. President Donald Trump began his second term, a total tariff of 145% has been imposed on Chinese imports, leading to cancellations of orders from U.S. customers. This phenomenon is also being observed among Chinese factories that relocated to Vietnam to avoid the first U.S.-China trade war in 2018. It remains to be seen whether the Chinese factories, now on the brink, will enter a wave of large-scale restructuring or succeed in penetrating domestic and overseas markets.
According to major foreign media outlets, including Bloomberg and The New York Times (NYT), some small factories in China have already entered temporary shutdowns. This is due to escalating tariff conflicts between the U.S. and China. Trump has currently imposed a total of 145% tariffs on Chinese imports. The Chinese have retaliated by imposing tariffs on U.S. imports at the same level, resulting in both sides responding in kind. Additionally, Trump has abolished the 'de minimis exemption,' which previously exempted products valued under $800 (about 1.2 million won) from tariffs.
The NYT spotlighted small factories in southern Guangzhou, which have concentrated on the production of low-cost goods that support China's export front. They particularly reported a case of a clothing factory that primarily supplied to Amazon, which has already experienced a decline in order volume. The factory manager said, "If U.S. tariffs are too high, we cannot supply (the goods)." The NYT noted, "Recent cancellations of clothing orders have particularly dealt a significant blow to the small factories in Guangzhou," adding that "U.S. importing firms often pay only half the price of clothing upfront, with the rest paid later, but as importing firms cancel contracts at the last minute, some factories are suffering from considerable stockpiles."
If tariffs on Chinese imports become prolonged, these factories will inevitably come to a standstill. Bloomberg Economics estimated that even if the U.S. imposes only a 100% tariff on China, it is projected that Chinese imports in the U.S. will be obliterated in the medium term. According to their analysis, China produces over 70% of lithium-ion batteries, smartphones, and computer monitors that the U.S. imports. Additionally, 90% of game consoles are made in China. Items like electric toasters, heated blankets, calcium tablets, and alarm clocks have a dependency on Chinese goods of over 99%. Most of these products could disappear from the U.S. market.
This phenomenon is also occurring among Chinese factories that have moved to Vietnam. Chinese manufacturers, including the electronics, furniture, and textile sectors, largely relocated to Vietnam during the first U.S.-China trade war in 2018 to avoid U.S. tariffs and benefit from the Regional Comprehensive Economic Partnership (RCEP), which established stable trade relations with China. Corporations like BYD and TCL have built factories in Vietnam, and as a result, China's investments in Vietnam surged 77.6% year-on-year to $4.47 billion (about 6.5 trillion won) in 2023. The South China Morning Post (SCMP) reported, "Due to an influx of Chinese investment, Vietnam's exports recorded a 14.3% increase to $405.5 billion last year, with about one-third heading to the U.S. market."
However, with the U.S. imposing a 46% reciprocal tariff on Vietnam, it can no longer serve as a refuge for Chinese factories. Trump stated he would delay the imposition of reciprocal tariffs on all countries except China for 90 days, but Jason Wu, a Chinese national operating furniture factories in Hanoi, told the SCMP, "U.S. customers canceled all their orders, and the factory has stopped operations." Liu Jie, who consults for Chinese manufacturers in Vietnam, said, "Many Chinese entrepreneurs are worried that their efforts to establish new industrial bases abroad will come to naught."
Factories in mainland China and Vietnam are planning to target the domestic market and diversify their overseas markets, but perspectives on this are divided. Some believe that the domestic market in China is challenging and may eventually lead to a restructuring phase. Andy Guo, founder of Waimaoza, an online electronics retailer and media platform for e-commerce, told Bloomberg, "Without the de minimis exemption, severe shipping delays and a wave of factory closures within three months can occur." There are also voices that the uncertainty in tariff policies makes it difficult to explore overseas markets successfully. Conversely, some analyses suggest that the situation may stabilize due to strong indications from Chinese authorities to support domestic and export corporations and the relatively stable supply chain in China compared to the U.S.