The ongoing trade war between the United States and China shows no signs of easing, with orders for products such as jeans and electronics destined for the American market plummeting, impacting the Chinese manufacturing industry. Chinese factories have started to reduce production and halt operations.
Most Chinese goods currently face tariffs of at least 145% to enter the United States, while American goods face tariffs of 125% to enter China. Some Chinese factory owners have indicated that American customers have either canceled or suspended orders, forcing them to cut production.
In interviews with The Financial Times and in dozens of social media posts, workers have shared photos of production lines shutting down or factory closure notices, highlighting the impact that American tariffs are beginning to have on the Chinese manufacturing industry.
The Chinese government has urged export manufacturers to shift their focus to the domestic market, but business owners argue that the domestic market in China has lower profits, frequent returns, and is not a viable alternative.
Workers have stated that the trade war has already led to factories producing items like shoes, jeans, power outlets, and portable stoves shutting down for a week or longer. Some business owners have mentioned that they are reducing overtime or weekend work.
Wang Xin, the president of the Shenzhen Cross-border E-commerce Association, told The Financial Times that many businesses are “very anxious” and have informed factories and suppliers to halt or delay shipments. The association represents over 2000 Chinese businesses, with some factories halting production for one to two weeks.
Recruiters from three Guangdong factories collaborating with manufacturers have revealed that more factories are reducing overtime and weekend work hours, with those heavily reliant on American orders granting entire staff leave.
“Our export orders have disappeared, so we have temporarily suspended operations,” said a 28-year-old worker at a plastics factory in Fujian who chose to remain anonymous. She mentioned that the factory has already been shut down for a week.
Hangzhou Xingguang Technology Co., Ltd., which produces endoscope inspection kits mainly for the U.S. market, has informed full-time employees that they can use the remaining time in April to seek new jobs and provided contact details for headhunting agencies.
“We don’t know how long this situation will last,” said Ms. Shi, the factory owner who preferred not to disclose her full name. “We can only wait and see, there is no other option.”
A 26-year-old man from Zhejiang, who refused to disclose his name, revealed that the toy factory he works for primarily exports to the United States, and management had to grant workers about two weeks of holiday. “The current situation is not easy,” he added.
Executives at Dehong Electrical Appliance Factory in Dongguan, Guangdong Province, have given workers a month of minimum wage leave, stating that the factory is under “tremendous pressure” following the suspension of orders by clients.
Han Dongfang, founder of China Labour Bulletin, closely monitoring the situation of Chinese manufacturing and labor, mentioned that it is still unclear how widespread the factory shutdowns are. “The restructuring of Chinese manufacturing will be a long process, and workers will face losses,” he said.
Goldman Sachs estimates that as many as 20 million people – about 3% of China’s workforce – could be affected by the impact on exports to the United States. If China and the U.S. completely disengage, it will further disrupt the labor market already exhausted due to widespread salary cuts and layoffs.
The Chinese government strongly urges exporters to find domestic buyers as an alternative to the American market. However, businesses fear that shifting to the domestic market may encounter various complex situations.
Eno Qian, who operates a clothing factory in eastern China, mentioned that for each product sold domestically, she earns 20 Chinese Yuan (approximately 2.74 U.S. dollars), with profits from domestic sales only one-tenth of that amount. Therefore, for her business impacted by tariffs, redirecting efforts to the domestic market is deemed “impractical”.
Many factories relying on exports have complained about issues in the Chinese market such as weak domestic demand, price wars, low profits, delayed payments, and high return rates.
Qian stated, “I have decided not to focus on domestic sales” due to thin profit margins, delayed payments by Chinese retailers, or requests for returned unsold goods, all posing a “cash flow risk”.
Professor Shi Heling from Monash University in Melbourne mentioned to Reuters, “In China, due to intense competition, profits are very slim, sometimes nearly zero. If some exporters turn to the domestic market, it could lead to bankruptcy.”
“This will further weaken consumer power because if people go bankrupt, they obviously have no income to purchase in the domestic market,” he added.
Due to American tariffs, Eno Qian mentioned that her sales have dropped by 30%, leading to staff layoffs. “The worst-case scenario is that we may have to close the factory,” she expressed.
David Lian, who runs an underwear factory in southern China, highlighted that the domestic market “is extremely price-sensitive, with high promotion costs and frequent returns”.
He mentioned that foreign customers place large wholesale orders, while the Chinese market mainly focuses on retail and small quantities. He is seeking new customers in the Middle East, Russia, Central Asia, and Africa.
Ms. Liu, engaged in exporting lighting products at a factory in Ningbo, only disclosed her surname. She mentioned that recruiting a separate team is necessary for promoting domestic sales.
“Our company is small and does not have the resources to handle this,” she said.