In April 2025, the trade war between the U.S. and China escalated rapidly, putting unprecedented pressure on Yiwu, Zhejiang, known as the “Global Capital of Small Commodities.” The punitive tariffs imposed by the U.S. at a staggering 245% have made it extremely challenging for Yiwu businesses, which heavily rely on the American market.
Many operators are trying to evade the tariffs by disassembling products and adjusting customs declarations. Meanwhile, social media and AI live streaming have become new avenues for them to explore in expanding into new markets. While appearing to adapt flexibly, behind the scenes lies increasingly severe operational challenges and deep-rooted obstacles brought by the restructuring of global supply chains.
Recently, a female entrepreneur from Yiwu, in an interview with CNN, firmly stated, “If America wants to buy, they can come and get it, I won’t give it to the EU.” This statement circulated widely in domestic media, seen as a defiant response from small and medium-sized enterprises towards the American sanctions.
Sun Guoxiang, a professor at Taiwan’s Nanhua University familiar with international trade, noted that such declarative statements are more of a “strategic stance.” In reality, completely shifting the loss of the American market to the EU is not practical.
He analyzed that despite Yiwu’s total import and export trade volume with Belt and Road countries reaching 413.34 billion RMB in 2024, with an 18.2% annual increase, and a 16.5% growth in the first quarter of 2025 for trade with the EU, indicating a trend towards market diversification, it does not eclipse the disparity in scale and purchasing power between the EU and American markets.
“The EU market has higher barriers, strict standards, language and cultural barriers, along with logistical and cost issues, which cannot be easily transitioned,” Sun Guoxiang stated.
Professor Ye Yaoyuan from St. Thomas University of the U.S. pointed out, “This is a typical domestic propaganda strategy because many factory owners in Yiwu primarily sell goods to the U.S. and now face a 245% tariff, which is deeply hurtful.”
He further remarked that if the EU or emerging markets were as good as claimed by merchants, “they would have shifted there earlier instead of coming up with solutions at this late stage.” In other words, there exists a significant gap between reality and stance.
Facing high tariffs, Yiwu merchants have demonstrated high levels of creativity and adaptability. Many products are reported to be disassembled into parts for separate customs declarations to reduce overall tax liabilities.
For example, a garment initially valued at 150 RMB with a cost of 100 RMB. Affected by a 100% tariff, the expected tax payment of 150 RMB causes losses. However, by splitting the selling price into 75 RMB for patent fees, 45 RMB for service fees, and 30 RMB for material fees through contract disintegration, taxation is only levied on the 30 RMB portion, substantially reducing costs.
Similar methods are abundant across various industries. Toy cars are divided into wheels, motors, car bodies, and instructions for separate customs declarations. A ceramic factory in Foshan splits ceramic cups into cup bases and firing services, reducing the tax rate from 25% to 9%. A manufacturer in Shenzhen breaks down a stone mill bed into wood, carving fees, installation services, reducing the tax rate from 60% to 8%. A lighting fixture factory in Zhongshan even individually packages screws, attempting to compress overall tax burdens.
Regarding these operations, Ye Yaoyuan stated that although these tactics are flexible, they carry high risks. He emphasized, “If lacking patent proof or genuine service records, once customs identify them as false declarations, not only will taxes need to be repaid, but businesses may face multiplicative fines.” He stressed that although these workaround methods may briefly avoid taxes, they increase logistics, labor, and management costs, rendering them unsustainable in the long run.
In the harsh environment, one of the paths Yiwu merchants are exploring to salvage the situation is by fully embracing digital marketing tools. Many merchants have begun using AI voice translation and multi-language live streaming technology to directly promote products to overseas customers on social platforms.
The application of such technological means has indeed broken through previous language and sales channel bottlenecks, enabling many small and medium-sized merchants to independently expand into international markets. Sun Guoxiang pointed out, “AI live streaming is an effective tool to overcome language barriers but still relies on product quality, logistics capabilities, and customer demand.”
However, a challenge persists as global markets cannot provide the same demand scale as the U.S. in the short term. Ye Yaoyuan bluntly put, “If you used to sell 100 tons of goods to the U.S. in the past year, now through live streaming, you can sell maybe 10 tons at most. What about the remaining 90 tons?”
Previously, many Chinese manufacturers transported product components to third countries like Mexico or Vietnam for assembly, exporting to the U.S. under the guise of “non-Chinese origin” to bypass tariffs. Yet, Ye Yaoyuan noted that the U.S. has already enhanced supervision over such “origin washing” practices.
“The FBI and customs have stepped up tracking imports of components from third countries,” Ye Yaoyuan stated, underscoring that the U.S. is not incapable of recognizing these operations. “Especially with advancements in AI technology, the American side can translate videos, identify content, and those merchants who believe they can operate discreetly through social media have actually been exposed.”
To evade additional high tariffs by the U.S., several Southeast Asian countries have begun taking measures. For instance, the Vietnamese Ministry of Trade has ordered a crackdown on the “origin washing” of transshipped goods and intensified inspections of the origin of goods exported to the U.S., imposing heavy penalties on violators. This directive has been effective since April 15.
Ye Yaoyuan believes that this trade war has evolved from mere economic means to a comprehensive battle involving policy and technology. “This is not a game where you can evade consequences with clever maneuvers.”
Some Yiwu merchants emphasize that the U.S. cannot do without Chinese-made decorations and clothing during the Christmas season. Nevertheless, Ye Yaoyuan punctures this illusion, stating, “If you don’t do it, the U.S. will turn to Vietnam, Malaysia, or even India.”
He warned that if merchants still cling to the misconception that the market cannot do without China, they will only hasten being replaced by international buyers. “The real victims are not American consumers, but Chinese small and medium-sized enterprises and workers.”
Ye Yaoyuan added that many of China’s manufacturing techniques learned in the early years were originated from Taiwan, with Taiwanese businesses having already established a presence in various locations in Southeast Asia. As Chinese goods become more expensive or risky, international buyers will naturally turn to more stable supply chains, gradually marginalizing Chinese merchants in the global market.
Faced with the short-term benefits and long-term risks of these makeshift strategies, Ye Yaoyuan emphasized that the outlook for Yiwu merchants is not optimistic. Whether it’s technology-driven live sales or legally precarious disassembly and transshipment, the core issue that cannot be avoided is China’s excess capacity mismatched with market demands.
He analyzed that the U.S. sanctions this time are not merely a singular trade measure but a long-term strategic decoupling. “This is a Cold War-style industrial restructuring, dividing the world into two supply chains pro-America and pro-China.”
“The real victims are the grassroots people in China. They rely on exports for livelihoods, and now with goods unable to ship, they have no income; while American consumers may experience short-term shortages at most, they do not incur losses.”