This year, we secured a contract worth 12 million yuan (about 2.3 billion won) with the American corporation Amazon. Compared to our usual contracts of 8 million to 9 million yuan (about 1.6 billion to 1.8 billion won), this was a significant deal. The export company insisted that we meet the delivery date, and we agreed to ensure that. However, we recently received notice that we need to reduce the supply quantity in the next few days. Until they find a way to ship the goods to the United States, we'll have no choice but to store them like this in the warehouse.
On the morning of the 18th, at a towel factory in Gaoyang County, Baoding City, Hebei Province, about 200 km away from Beijing. The factory manager, who has been making towels here for about 30 years since the 1990s, said this in front of hundreds of boxes and piles of towels that are still incomplete: "All of this is supposed to go to the United States, but all related operations are currently suspended." A contract worth 12 million yuan was a boon for this factory, which has a monthly revenue of 6 million yuan (about 1.2 billion won). However, now that the trade war between the U.S. and China has begun, this has become a setback that threatens the factory's future.
The exit of the U.S.-China trade war does not seem to be in sight. U.S. President Donald Trump has imposed an additional tariff of 145% on Chinese imports, and China has retaliated with a 125% tariff. Trump noted that an agreement with China might be achievable in the next 3 to 4 weeks, but it is uncertain whether the deeply negative sentiments between the two countries can quickly calm and lead to a resolution. In the meantime, small and medium-sized Chinese factories relying on exports are gradually losing their financial resilience.
◇ Desolate wholesale street... “We need to reduce labor costs and lower prices to barely offset tariffs”
The towel wholesale street we visited in Gaoyang County had a bleak atmosphere, with most shops closed. Gaoyang County is China’s largest textile industry base, home to about 4,200 related corporations as of the end of last year. The towels produced here amount to 5 billion pieces annually, which is about one-third of China's total production. One wholesale trader, who was still open, said, "These days, we usually open our shop in the afternoon because there’s not much work due to the recession and the U.S.-China trade war."
The imposition of tariffs by the United States is lethal to China's textile industry. According to the China National Textile and Apparel Council, the export value of home textile products last year was $48.49 billion (about 69 trillion won), which represented a 5.6% increase compared to the previous year. It was a rebound after two consecutive years of negative growth in 2022 (-1.09%) and 2023 (-2.38%). The increase was due to exports to the United States, which make up nearly 40% of total exports (11.1%) and the European Union (EU, 9.49%), but now these exports to the U.S. are bound to decline. Wholesale trader Wei Wangchun expressed concern, saying, "The profit margins for products supplied to the U.S. and EU are high, so the impact is inevitable."
Factories and wholesalers that have many U.S. export customers are left with no choice but to forgo profits and endure. Jin Juan, who works at the largest textile wholesale market in Gaoyang County, "Gaoyang Commercial Trade City," said that everyone must lower costs to survive. He mentioned, "Factories need to cut labor costs and lower prices, and we, as wholesalers, along with the exporters purchasing here, also need to lower prices to barely offset the tariffs." The factory manager, Chi, stated, "I told my wife, who is in charge of operations, that even if we don't make money for a while, we need to meet the quality and plans required by customers. It doesn’t matter if we don’t make money for a month or two; we just need to keep the factory running."
However, they are unlikely to endure the current phase of the U.S.-China trade war for long. There aren't many customers available to replace U.S. orders. For Chi, more than half of the total production volume accounts for U.S. exports. While authorities in China have emphasized that "one must understand that China is a super-sized economy" and are trying to boost the domestic market, wholesalers and factory representatives we met on that day said they weren't considering seeking new customers domestically. One wholesaler remarked, "In the domestic market, competition is too fierce due to poor consumption, making it hard to survive." According to China's National Bureau of Statistics, the per capita expenditure on clothing, shoes, hats, and fabrics last year saw only a 0.3% increase compared to the previous year.
The cries of small and medium-sized factories in China are echoing across the nation, extending beyond Gaoyang County. On the 18th, Radio Free Asia (RFA) reported that factories in major export regions such as Zhejiang Province, Jiangsu Province, and Guangdong Province are beginning to halt production and go on long vacations starting from the Labor Day holiday (May 1). Factories are not only reducing working hours, but employees are reportedly mobilizing relatives and acquaintances to handle inventory. Qian Xiang, who has worked as a manager in trade companies for over 10 years in Zhejiang, Jiangsu, and Guangdong provinces, told RFA in an interview, "We haven't seen an economic situation like this for decades."
The U.S.-China trade war has escalated into a matter of prestige between Trump and Chinese President Xi Jinping, making resolution difficult. The White House announced on the 15th that if one includes the product-specific tariffs imposed before Trump's administration, the maximum tariffs on China could reach 245%. In response, the Ministry of Foreign Affairs in China stated on the 17th, "If the U.S. keeps playing games with the tariff numbers, we will ignore it" and added, "If the U.S. stubbornly infringes on China's rights and interests, China will respond firmly and confront it to the end." Trump is awaiting a declaration of surrender from Xi, but this likelihood is deemed low.