The Trump administration is set to cancel the small-scale international shipping tax exemption policy, which is causing an impact on US export orders and leading to numerous clothing factories within Guangzhou’s “Shein Village” to close down. These clothing factories are suppliers for the fast-fashion platform Shein.
According to a report from Nikkei Asia on April 18, many clothing factories line the narrow streets in the Panyu district of Guangzhou, with many of them supplying to the Chinese fast-fashion brand Shein. In shops that were operational earlier this month, one can now see piles of Shein shopping bags, which were previously sent to US consumers via mail.
“This year, Shein orders have decreased, and our sales have dropped significantly,” said a worker at a clothing factory employing about 20 staff members.
On April 9, Trump signed an executive order to permanently terminate the tariff exemption for small parcels valued at less than $800 from China and Hong Kong, known as the “De Minimis” exemption. The price of small parcels under $800 can now incur a tariff rate as high as 120%. For parcels arriving between May 2 and May 31, a $100 tariff will be imposed per item. For parcels arriving after June 1, a $200 tariff will be imposed per item.
Chinese e-commerce giants Shein and Pinduoduo’s Temu have been utilizing the tax exemption policy for small parcels to directly ship a large number of products from Asian factories to US consumers, saving on transportation costs and reducing inventory. However, Trump’s trade policies are forcing these companies to adjust their production plans, causing significant impacts on suppliers.
“In just two months, workshops all over the place are closing down,” said Li Lianghua from Hunan, who operates a workshop in a four-story building in Panyu and pointed to another workshop nearby filled with semi-finished clothing.
Shein has been urging suppliers to move to Vietnam to mitigate the impact of Trump’s tariff plan. However, smaller enterprises lack the resources to relocate, leaving many with no choice but to shut down.
Among the nearly 20 Shein suppliers operating in the same building, half have already closed. Mr. Li has stopped accepting Shein orders and has resorted to direct selling through social media.
Research by Nomura Holdings economists shows that small goods account for more than one-tenth of China’s exports to the US.
The US Customs and Border Protection estimates that they handle over 1 billion batches of such goods each year. Census Bureau data shows that low-value goods are the eighth largest category of goods imported from China to the US, valued at $4.7 billion by 2023, more than double the amount in 2014.
Even before Trump’s reelection in November, US companies have been reducing their business operations in China. A Dongguan factory producing luggage and leather goods lost all contracts with four US customers by the end of 2024, resulting in a loss of $150,000 in annual sales.
If more Chinese exporters start lowering prices to expand into markets beyond the US, deflationary pressure from China’s economy may spread to other countries.
“The price competition in Asian exports will intensify,” said a Chinese manufacturing executive.
In addition to canceling the tax exemption policy for small parcels, the Trump administration has imposed a 145% equivalent tariff on most Chinese exports to the US, as well as a 20% fentanyl penalty tariff. These measures are expected to exert greater pressure on the Chinese economy, which has been struggling with weak growth due to the ongoing slump in the real estate market.
As early as February 8, the Financial Times of the UK reported that China’s economic slowdown has led to overcapacity, prompting Chinese exporters to reduce prices for goods sold overseas. Recently, the rate of decline in the prices of Chinese export goods has been the fastest since 2008, indicating that the world’s largest exporter is beginning to export deflation overseas.
The report quoted Templeton Emerging Markets Investment Trust portfolio manager Chetan Sehgal as saying, “China is exporting deflation to countries around the world, and you will find that all countries are responding to China’s overcapacity.”