Under the high pressure of tariffs in the China-US trade war, Chinese foreign trade factories are losing orders and facing mass production halts. Chinese state media has revealed that some foreign trade companies with a large market share in the United States are encountering situations where orders are being suspended, reduced, or canceled. With weak domestic consumption, the strategy of “exporting to domestic sales” is criticized as merely a theoretical solution.
According to a report by CCTV on the 27th, a company in Linhai City, Taizhou, Zhejiang Province, which mainly produces plastic household kitchen products and has been deeply involved in overseas markets for over 20 years, with 75% of its products sold to European and American countries. Due to the increase in US tariffs, the company has suffered losses of over 150 million yuan in orders.
In response to the tariffs, some enterprises are adjusting their supply chains by shifting some production processes to other countries or regions, which will result in increased production management and logistics costs.
Xiamen Yao Ming Ribbon and Ornaments Co., Ltd., which sells products to the American market, mainly produces “cuff ribbons” with holiday patterns such as snowflakes, reindeer, and Christmas trees. The company’s general manager mentioned that around 10% of the production capacity is currently backlogged. To adapt to the situation, the company is undergoing a “major transformation,” replacing all elements with Chinese holiday themes.
Dongguan-based Zhongwang Toy Co., Ltd., primarily exporting toys with customers from Japan, South Korea, and Europe and the United States. Ms. Chen, the owner, with eighteen years of experience in foreign trade, is experiencing tension with American clients for the first time.
“We Chinese factories already operate on the thinnest profit margins; it’s really hard-earned money. When the tax was increased by 25%, we had heated arguments with the American merchants, with each side being equally stubborn. After the tariff reached over fifty percent, I didn’t bother anymore, I didn’t even look at them…” she stated.
Although the state media reports aim to boost morale, the interviewed foreign trade bosses could not hide their pessimism, some even bluntly stating that the China-US trade war may not end in three to five years, possibly lasting five to ten years.
The female boss of the toy factory mentioned that she previously manufactured for global high-end brands but is now planning to launch her own brand. Consequently, compared to those factories that have halted operations, her factory is unusually busy; workers only leave at 9:40 in the evening. She emphasized the crucial nature of the upcoming year, as a failure to tap into the domestic market would foreclose future opportunities.
Facing the environment and trend of China-US trade decoupling, the Chinese authorities vigorously promote the prospect of “exporting to domestic sales.” On April 26th, Wuhan, Hubei Province initiated the “Wuhan Station of Excellent Foreign Trade Products of China” event, showcasing products from over 200 domestic and foreign trade enterprises, while also supporting the establishment of online stores for foreign trade enterprises. Even the Canton Fair has shifted its onsite displays online.
At the end of last weekend, after the closing of the second phase of the Canton Fair, exhibitor Alain (pseudonym) expressed relief at finally completing the five-day event. She remarked, “Participating in exhibitions is about making friends,” and noted the deterrent effect of high prices; for instance, high-end chairs priced around 20 dollars each scared off potential customers from the Belt and Road initiative region.
While there seemed to be many purchasing agents from Russia, their purchasing power was limited. Alain explained, “What Russians buy are essential items, things they can use without the need for extravagance. Foreign exchange might not flow in due to sanctions.”
As there were no European and American customers, English proficiency is arguably less crucial for foreign trade personnel now. Alain received numerous clients speaking Spanish from South American countries at the Canton Fair, relying on simultaneous interpretation software for communication.
Foreign trader Karen informed the Epoch Times that since the trade war began, her orders have not decreased but rather increased. The uncertainty surrounding the tariff war has made American clients collaborating with Chinese manufacturers feel insecure. Being in the US and trusted by old clients, she insists on receiving payment only upon delivery.
“In the past, without a trade war, hearing news took a day due to the time difference. Now, they send me multiple product requests in a single email, 5 or 6, 7 or 8 products at once. Even if other manufacturers had already prepared logos, they still reach out to me for a price quote. And if the prices are similar, they send them all to me, leading to a surge in orders,” she explained. “The products I import are all promotional products. Small packages are no longer feasible due to added duties and shipping costs via sea freight. However, due to reliance on certain products, customers accept the costs.”
Alain disclosed that local officials are contacting them to engage in e-commerce. However, their business currently focuses solely on traditional trade and isn’t suitable for e-commerce due to the significant investment required. Formerly, exhibition participation was the main channel for customer exploration, but with the impacts of tariffs affecting the European and American markets, the aftermath of selling furniture, which is not a fast-moving consumer good with intricate after-sales services, has been challenging in recent years.
Over a dozen e-commerce platforms such as JD and HEMA have announced plans to assist foreign trade enterprises in expediting their entry into the domestic market by leveraging supply chain capabilities and direct sourcing advantages. JD has declared a significant procurement initiative for export-to-domestic sales products amounting to no less than 200 billion yuan within the next year.
According to a report by CCTV News, supermarket chains such as Yonghui, Wumart, Lianhua, and Wushang Group are opening a direct path for foreign trade enterprises to access the domestic market, allowing foreign trade products to meet consumers at the quickest pace.
Mrs. Xiao from Hebei recently informed the Epoch Times that she purchases “excellent foreign trade products,” but has yet to discover where to buy them. She mentioned, “Formerly, surplus or substandard products meant for export were directed to the domestic market. These are products I would purchase since their quality is excellent,” showing reluctance towards platforms like JD, likely due to habit and the appeal of lower prices.
Mrs. Xiao speculated that bosses of low-quality domestic market products in China are in jeopardy since the products are of poor quality. They cannot compete with foreign trade ventures.
Discussing the difference between export and domestic sales, Karen explained that companies managing both types often have one factory specializing in low-quality products for domestic sales and another dedicated to top-notch products for export. Foreign customers have stringent quality checks, and if 1% of a shipment proves defective upon arrival, the entire container is returned.
“All surplus export items are redirected to the domestic market, selling at inflated prices compared to the export rates, imposing a burden on Chinese consumers. However, when sold to foreigners, for example, if the cost is 30 US dollars and sold at 50 US dollars, generating a profit of 20 US dollars, without the absurd price inflation seen in the domestic market. Chinese export enterprises frequently engage in such practices,” she remarked.
With the trade war escalating, how will the communist authorities’ promotion of “export to domestic sales” fare? A recent article by the renowned public account “Iceberg Thought Sharing” warned against underestimating the impact of the tariff war, stating that the potential success of “export to domestic sales” hinges on the domestic market’s supply and demand equilibrium. Market demands differ inside and outside, however, the consumption capacity stemming from economic dividends links both.
The article highlighted that China’s economy has heavily relied on foreign trade for over 40 years, such that “external demand” and “internal demand” are inseparable. Reviewing the data on total foreign trade volume and total social retail sales over the years, a significant positive correlation is evident between the two. A robust foreign trade market boosts domestic consumption strength, but conversely, subdued foreign trade leads to sluggish domestic consumption.
Ultimately, all economic costs will trickle down to consumers, who are the ultimate bearers of economic burdens.
In March, the Beijing Municipal Bureau of Statistics released a report indicating a significant 9.9% year-on-year decline in retail sales, dropping to 104.9 billion yuan. Similarly, Shanghai’s total retail sales of commodities in March amounted to 128 billion yuan, marking a substantial 14.1% decrease year-over-year. The cooling of consumption in major cities like Beijing and Shanghai serves as an ominous signal of a contracting national consumption market.
During an interview with the Epoch Times, former Chinese businessman Yang Zhanqun pointed out that China has had excess production capacity for some time. It’s rumored that in Jinjiang, Fujian Province, a city in China meets over one-third of the world’s demand while satisfying domestic needs simultaneously. With stagnation in foreign trade exports, how can these local industries purely rely on domestic consumption for survival?
He noted that under the pressure of American tariffs, many domestic enterprises have already halted production, with the declaration of bankruptcies not being uncommon. The enterprises that previously thrived on foreign trade exports are now finding it challenging to sustain operations. On the other hand, those focused on processing domestic orders are relatively unaffected. “A clothing factory owner I knew from many years back now refuses to take orders, focusing solely on European and American orders. The sacrifices made by the Chinese Communist Party at any cost to win the China-US tariff war directly impact these small and medium-sized business owners; they are the ones paying the price!”
China expert Wu Wenxin, in an interview with the Epoch Times, also highlighted that Chinese consumer spending has been declining in recent years. The largest consumer city in China, Shanghai, saw a 14% decrease in consumption in March compared to the same period last year, while Beijing witnessed a 10% drop. He questioned the feasibility of expecting these consumers to increase spending or purchase unexportable goods. Xi Jinping’s aspiration for so-called internal circulation, aiming to reduce reliance on exports and redirect sales of products meant for export to the domestic market, is merely wishful thinking.
As China navigates through the challenges posed by the escalating tariff war and dwindling foreign trade, the path towards a successful “export-to-domestic sales” strategy remains uncertain, contingent upon the state of the domestic market’s demand and supply dynamics.