In a recent interview with Reuters, Jacky Ren, a Chinese kitchen appliance manufacturer, confessed, “If we don’t take orders, it’s immediate death. Everyone would rather die slowly.” To maintain American customers, many exporters are currently selling products at a loss and have almost no bargaining power.
The company managed by Ren, Gstar Electronics Appliance, is still primarily based in China and has been under immense pressure since the Trump administration first imposed tariffs. Despite recent preliminary agreements between U.S. and Chinese officials to ease some export restrictions and reduce tariffs on rare earth industries, small businesses like Ren’s that haven’t relocated their production facilities are receiving little practical help and facing intensified competition.
According to Professor Chen Zhiwu from the University of Hong Kong, if the situation of selling products at a loss continues for 3 to 4 months, many small and medium-sized enterprises may not be able to survive, and this has become a negotiating chip for the U.S.
Although there is currently a temporary truce in the U.S.-China trade war, the average tariff on Chinese goods is still 30 percentage points higher than last year.
Pressure on Chinese industrial enterprises is becoming increasingly evident. In April this year, there were 164,000 loss-making enterprises, a 3.6% increase from the previous year, accounting for about one-third of the total number; while the capacity utilization rate in the same quarter dropped from 76.2% at the end of last year to 74.1%, approaching historical lows. Although exports in May increased by 4.8% year-on-year, showing overall resilience, exports to the U.S. decreased by over 30%, intensifying price competition and pushing down overall prices.
Goldman Sachs economist Shawn Hui estimates that about 16 million job positions in China, accounting for over 2% of the total workforce, are at stake due to the production of goods destined for the U.S.
Prior to the U.S.-China talks in Geneva, labor-intensive industries in southern China, such as furniture and toys, have shown signs of bankruptcy. While temporarily reducing tariffs has prevented massive layoffs, experts warn that millions of job opportunities are still at risk.
During a White House press conference on April 29th, U.S. Treasury Secretary Benson mentioned the impact of the U.S.-China tariff war, stating, “As time goes on, we will see that for China, these tariffs are unsustainable. In the past few days, I’ve seen some very large numbers that indicate if these numbers continue, China could quickly lose 10 million jobs.” Benson added, “Even if the tariffs are lowered, they could still lose 5 million jobs.”
Candice Li, a marketing executive at a medical equipment company in southern China, revealed that due to delayed payments from American clients, the company is facing cash flow problems and has been unable to pay salaries for two months. She expressed, “Appearances may seem calm, but business is extremely difficult.” A quarter of the employees have already resigned, and she questions how operations can continue without being able to pay wages.
Alicia García-Herrero, Chief Economist for Asia Pacific at Societe Generale, stated that the current U.S. tariffs have put immense pressure, noting that while it is a weakness for Beijing, it is not a good card for Washington either, as the U.S. also faces high inflation and supply chain issues.
Nevertheless, not all Chinese enterprises are in distress. China still supplies about one-third of goods globally, making it difficult for the U.S. and other countries to completely disengage in the short term. However, industries such as Christmas decorations, household appliances, and low to mid-range electronic products, face the brunt of the impact.
Ding Shuang, Chief Economist for Greater China at Standard Chartered Bank, believes that the current support for Chinese enterprises is partly due to American importers stockpiling goods before tariffs increase, as well as the Chinese authorities expanding fiscal measures and lowering interest rates to stimulate the economy. However, as these supports gradually diminish, future pressures will intensify.
He-Ling Shi, a professor at Monash University in Australia, bluntly stated, “China still heavily relies on export-driven low-end manufacturing to support the economy, which is a major long-term issue.”