Under the dual pressure of the US-China tariff war and overcapacity, the manufacturing industry in China is facing a difficult survival situation. Mike Chai, a kitchen cabinet manufacturer in Foshan, told Reuters that his company, Cartia Global Manufacturing, has reduced its workforce by half to 100 people since the outbreak of the pandemic. This year, he plans to further cut labor costs by about 30% and strives to avoid factory closure through measures such as shortening working hours and arranging unpaid leave for employees.
“We are now in survival mode, barely breaking even,” 53-year-old Mike Chai told his employees. “You have been working here for 10 to 15 years, and we will get through this together.”
This year, US President Trump increased tariffs on Chinese imports by 30 percentage points, covering a wide range of manufacturing products including furniture and kitchenware. While China’s official urban unemployment rate remains at around 5%, analysts warn that “hidden unemployment” is rapidly expanding, with cases of workers being forced to reduce shifts and salaries becoming more common.
On Monday (August 11), both the US and China agreed to extend the tariff truce for 90 days, temporarily preventing tariffs from reverting to triple-digit levels seen in April.
Economists point out that “hidden unemployment” is not reflected in official statistics. High tariffs and overcapacity are squeezing wages, dampening consumer confidence, and further weakening demand. Consumer confidence in China is nearing historical lows, retail sales are slowing, and the inflation rate in July was zero – a sign of weak demand and deflation risks rather than price stability benefits.
Alicia Garcia-Herrero, Chief Economist for Natixis in the Asia-Pacific region, emphasized that Chinese manufacturing workers are the “biggest losers” of the trade war. She criticized the current model, saying, “This mode exploits people – price decline forces companies to cut costs, leading to a downward spiral in wages. If exporting means losing money, then it shouldn’t be done.”
She stressed that Chinese manufacturing workers are facing the impact of tariffs, even though exports and the economy appear to be growing. Workers may be forced to take unpaid leave or reduced working hours, even without being laid off.
To remain competitive, Mike Chai plans to reduce prices of his products by about 10% and decrease overtime days from 28 days per month to around 10 days – with overtime originally accounting for more than one-third of employees’ income.
More and more factories are resorting to hiring temporary workers, hiring only when there are orders and laying off when demand decreases. Dave Fong, who operates three factories in southern China producing backpacks, climbing gear, and industrial machinery, revealed that he once laid off 30 permanent workers, only rehiring some on temporary contracts after receiving new orders, “because we don’t have to pay pensions or insurance, we pay on a daily or hourly basis.”
In the short-term labor market in Datang Village, Guangzhou, temporary workers’ hourly wages have decreased from 16 yuan last year to 14 yuan. A garment worker recalled that the daily wage in 2021 was 400 yuan, but now it’s hard to find even half of the work. “If they only offer two or three hundred yuan, I won’t take the job,” said the worker who, along with his wife, worked in a garment factory and only worked 14 days in July, while still having to pay 10,000 yuan annually for their child’s kindergarten.
Richard Yarrow, a researcher at the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School, warned that declining manufacturing wages will intensify deflation pressures, especially in low-skill industries such as textiles, furniture, and simple electronics.
In the recruitment market in Longhua, Shenzhen, the hourly wage for electronic factory workers ranges from 17 to 28 yuan, but a 26-year-old job seeker named Mo complained that in reality, they only receive 20 yuan after deductions for management fees, accommodation, and cleaning expenses.
Mr. Huang, 46, unemployed and divorced after the real estate market collapsed, traveled from Yunnan to Shenzhen in search of a job but found no success after five consecutive days. He shared, “There was an interview scheduled in the morning, but they asked for an 80-yuan introduction fee. I didn’t go and instead bought something to eat.”