Chinese manufacturers are scaling back production and seeking new markets as United States tariffs take a toll, according to companies and analysts.
With higher costs on exports to the U.S., many are diversifying into other regions.
“I know several factories that have told half of their employees to go home for a few weeks and stopped most of their production,” said Cameron Johnson, Shanghai-based senior partner at consulting firm Tidalwave Solutions.
He stated that factories manufacturing toys, sporting goods, and affordable items sold in Dollar Stores are the hardest hit at the moment, according to CNBC.
“While not large-scale yet, it is happening in the key [export] hubs of Yiwu and Dongguan and there is concern that it will grow,” Johnson said. “There is a hope that tariffs will be lowered so orders can resume, but in the meantime companies are furloughing employees and idling some production.”
Goldman Sachs estimates that between 10 million and 20 million workers in China are involved in U.S.-bound export businesses. In comparison, the official number of workers in China’s cities last year was 473.45 million.
While U.S. President Donald Trump claimed on Thursday that trade talks with Beijing were in progress, the Chinese side has denied any ongoing negotiations.
Ash Monga, founder and CEO of Guangzhou-based Imex Sourcing Services, stated that the impact of the recent tariff doubling is “way bigger” than the effects of the Covid-19 pandemic.
He pointed out that for small businesses with only a few million dollars in resources, the sharp rise in tariffs could be overwhelming and potentially force them out of business.
He explained that, given the strong demand from clients and importers of Chinese goods, he is launching a new “Tariff Help” website on Friday to help small businesses locate suppliers outside of China.
The business disruption is pushing Chinese exporters to adopt new sales strategies.
Woodswool, an athleticwear manufacturer based in Ningbo near Shanghai, swiftly began selling its products online in China through livestreaming.
After launchin the sales channel just a week ago, the company reported receiving over 30 orders, with a gross merchandise value exceeding 5,000 yuan ($690).
It’s a small but promising step toward recovering lost business.
“All our U.S. orders have been canceled,” Li Yan, factory manager and brand director of Woodswool, said in Mandarin, translated by CNBC.
“A few businesses have told us that under 125% tariffs, their business model is not workable,” Michael Hart, president of the American Chamber of Commerce in China, told reporters Friday.
He also pointed out a rise in competition among Chinese companies over the past week. Hart mentioned that tariffs from both countries are likely to stay at certain levels, with exemptions for some tariffs, “That’s exactly what they’re backing into.”
