As the trade war between the US and China continues to escalate, high tariffs have led to a virtual standstill in Sino-US trade, plunging China’s foreign trade manufacturing industry into an unprecedented crisis. A cross-border manufacturing giant in Dongguan, operating for 18 years, recently announced a cessation of production, sparking widespread concerns in the industry about the future prospects of China’s export manufacturing sector.
Experts point out that this event is not isolated but marks the beginning of a structural contraction in China’s manufacturing industry. With the ongoing escalation of the US-China tariff war, high tariffs and a global decrease in demand are posing a double whammy on small and medium-sized private enterprises, pushing the manufacturing sector into a crisis of “silent collapse.” This is the most frightening aspect as this hidden crisis is hard to prevent but could potentially continue to spread throughout the real economy.
Dongguan in Guangdong, one of the birthplaces of China’s global outsourcing model, has long been known for its labor-intensive industries and export-oriented economy.
Recently, Dongguan’s veteran export manufacturing company, Dongguan Dehong Electrical Products Co., Ltd., with 18 years of history, announced a temporary suspension of production due to external economic changes such as the US imposing additional tariffs, resulting in production orders being halted and workers being put on leave. Established in 2007, the company focuses on the research, manufacturing, and sales of household electrical appliances, with 100% of its products exported to European and American markets.
According to reports from mainland Chinese media outlets like Netease and Sohu, Dehong Electrical indicated in its notice that business operations may resume after renegotiation with customers and downstream parties, but the current situation has pushed the company into distress. This incident reflects the survival crisis faced by China’s foreign trade manufacturing industry under the heavy pressure of the tariff war.
Economic scholar Davy J. Wong from the United States pointed out that Dongguan is not only a key hub for Taiwanese and Japanese businesses’ early development but also an important supporting base for Shenzhen’s electronics industry, regarded as the “leader” of China’s manufacturing.
“If even large factories like those in Dongguan can’t survive, it means that China’s manufacturing industry is contracting,” Wong told Dajiyuan, noting that in the past, “Made in China” symbolized low cost and high efficiency; however, under the pressure of high tariffs and declining demand, this model is gradually shrinking inward.
The escalation of the US-China trade war is not only impacting individual enterprises but is also affecting major foreign trade hubs in southeastern China. Hundreds of thousands of foreign trade factories in Zhejiang, Jiangsu, Guangdong, and other provinces have faced nearly zero American orders, leading to a “collective vacation wave.”
As China’s “May Day” holiday approaches, factory shutdowns and disruptions to air and sea freight routes may intensify. Analysts suggest that if both sides fail to swiftly return to the negotiation table and the tariff war continues to worsen, China’s foreign trade manufacturing industry will face even greater impacts.
Industry insiders are concerned that prolonged trade friction may reshape the global supply chain layout, prompting Chinese foreign trade companies to accelerate their transformation to cope with challenges. Currently, some enterprises are trying to explore emerging markets or adjust their product structures, but in the short term, it’s difficult to offset the losses caused by the contraction of the European and American markets. The future trajectory of the US-China trade war will deeply affect global economic stability and the industrial chain.
Regarding the potential for more factory closures in the future, Wong believes it’s more of a continuous “collapse scenario” rather than a “wave of shutdowns.” He explained that many factories have not formally gone bankrupt but have chosen to halt production, lay off workers, or operate at low frequencies, entering a state of being “half-dead.” This phenomenon is often overlooked in official statistics because companies may still maintain registrations and storefronts while significantly reducing staff or operation hours.
“This silent collapse is the most alarming, like a quiet virus spreading,” Wong warned. This hidden crisis lacks clear signals, making it difficult to prevent but potentially spreading continuously within the real economy. Small and medium-sized private enterprises are particularly vulnerable, facing the twin pressures of high tariffs and a domestic demand downturn with almost no way out.
In his interview, Wong pointed out that China’s economy currently relies on three pillars to withstand external pressures:
Real Estate Market:
Despite the deep crisis in China’s real estate sector with dwindling transaction volumes and falling prices, some projects still generate limited cash flow. Local governments are struggling to keep operations running through land sales and debt restructuring.
Local Debt Extension:
Local government debt is massive, intensifying the pressure of interest payments. Wong noted that China is extending debts to defer debt repayments to the future for short-term stability. However, this strategy may accumulate greater risks.
Export Adjustment:
With a sharp decline in US demand for high-value-added products from China, the country has shifted focus to increasing exports to low-value markets in Asia, Africa, and Latin America while seeking to expand trade with Europe. However, French Prime Minister Francois Beru recently stated that Communist China cannot replace the United States.
Wong emphasized that China’s political and economic system provides it with short-term resilience. Unlike Western democracies, China’s centralized system allows for quick resource allocation, tightly controls banks and financial systems, and has strong policy implementation capabilities. Additionally, the closed information environment limits domestic awareness of external circumstances, reducing social unrest risks.
However, he cautioned that the fundamental problems in China’s economy lie in inherent deficiencies. Lack of innovation, systemic rigidity, and policy misdirection have led to a gradual decline in economic vitality. “The nationwide system is highly efficient in specific situations but is also prone to directional mistakes and difficult to self-correct,” Wong said.
Since the outbreak of the US-China tariff war in 2018, there have been no signs of easing tensions. Wong believes that this conflict has transcended traditional trade disputes, evolving into a comprehensive clash of values, economic models, and legal systems. The global supply chain is shifting from integration to a more fragmented approach, where the US’s goal is not only to impose tariffs but to construct a new supply chain system based on universal values and shared legal frameworks.
“The US is not simply negotiating; it aims to reshape the global economic and political structure,” Wong analyzed. Regardless of whether the US leader is Trump or Biden, the core goal of tariff policies towards China remains consistent: to demand that the Chinese Communist Party adhere to international norms and rules; otherwise, it may face marginalization. The difference lies in Biden’s inclination towards uniting allies to exert pressure collectively, while Trump leans more towards unilateralism, staunchly demanding other countries to “take sides.”
Facing the prolonged escalation of the US-China tariff war, where does the future lie for China’s manufacturing industry? Wong pointed out that small and medium-sized private enterprises need to expedite their transformation and explore opportunities in domestic or emerging markets. However, high tariffs, supply chain restructuring, and global economic uncertainties make this transformation fraught with challenges. The shutdown of the Dongguan factory is just the tip of the iceberg, and without effective responses, more enterprises may find themselves in the predicament of “silent collapse.”
The continued escalation of the US-China tariff war poses unprecedented challenges to the Chinese economy. Faced with multiple pressures such as shrinking export markets, weak domestic demand, and industrial hollowing-out, China needs to find a balance between economic reform and political stability. However, as Wong mentioned, the inherent contradictions in the CCP system may introduce uncertainties into this transformation process. The success of China in effectively dealing with the impact of the tariff war remains to be seen in the future.