The Impact of Tariffs on Guangzhou’s Garment Factories

Guangzhou, china, a long-standing hub for the garment industry, is experiencing significant disruption due to escalating trade tensions.For manufacturers who have relied on exports to the United States, the combination of tariffs and new taxes on cheap imports is creating an unsustainable business environment.

Liu Miao, who has been selling clothing on Amazon to wholesale buyers in the U.S. for five years, has seen his trade come to a standstill. he operates a small factory in Guangzhou and, like other factory managers, is grappling with already tight profit margins.

The impact of these tariffs is stark. Liu explained the financial strain:

“You can’t sell anything to the United States right now. The tariffs are too high.”

Liu Miao,Guangzhou Factory owner

Previously,Liu made about $1 on every garment sold on Amazon,but that profit has dwindled to just 50 cents. He also expressed concerns about reducing employee pay, highlighting the competitive labor market in the region.

The Rise and fall of E-Commerce Platforms

Platforms like Amazon, Shein, and Temu have connected China’s extensive manufacturing capabilities to global consumers. These online marketplaces have enabled numerous small factories in Guangzhou to reach shoppers in the United States. The de minimis rule, which allowed packages worth less than $800 to enter the U.S.tax-free,further facilitated low prices.

Exports have been a crucial driver of China’s economic growth, notably in e-commerce. in one Guangzhou neighborhood,luxury cars parked outside factories served as a testament to the success of businesses supplying clothing to apps like Shein and Amazon,where workers earned about $60 a day.

However, the current trade environment is pushing many businesses in Guangzhou to a critical juncture.

Compounding Challenges: Domestic economic Pressures

The tariffs are not the only challenge. The Chinese government has struggled to stimulate consumer spending following the collapse of the country’s property market.Declining home values have led to cautious spending habits among Chinese consumers, further impacting the garment industry.

Zhang Chen, a former owner of six clothing stores in Hubei province, experienced this firsthand. He was forced to close his stores due to weak consumer demand and high rents after the COVID-19 pandemic.

“In 2020, business wasn’t coming back, and in 2021, it still wasn’t coming back. By 2022, when it was still like that, it looked like it was never coming back.”

Zhang Chen,Former Clothing Store Owner

Zhang now earns about $100 a day delivering garments to Shein collection points near the airport.

Relocation and Production Adjustments

The garment factories in Guangzhou, while not as technologically advanced as those producing electric vehicles or semiconductors, employ millions of workers. Faced with declining orders and rising costs,many factory owners are considering relocating their operations.

Nine factory owners and managers in Guangzhou indicated they were contemplating moving to provinces like Hubei, where labor costs are lower.Some are even considering moving to countries like Vietnam to avoid potential tariffs.

Many factories have reported declining orders and have suspended some production lines. The closure of neighboring businesses has become a common sight in recent months.

The End of Tax-Free Imports and Factory Closures

As the U.S. policy to end tax-free imports from China took effect, businesses like Liu bin’s garment factory are feeling the squeeze. Liu’s factory specializes in dresses and tops, with Shein typically purchasing about 100,000 pieces a month.Though, after Shein reduced its order by half in April, Liu began moving his production line to Jiangxi province due to unaffordable rent in Guangzhou.

Liu also mentioned that Shein offered incentives to help cover the cost of moving operations to Vietnam,but he reconsidered due to rising tariffs on Vietnamese goods.

“But then the tariffs on Vietnam got even higher, too.”

Liu Bin, Guangzhou factory Owner

He has also explored other platforms like TikTok and Temu, but orders have declined across the board. They’re all falling,and we are only waiting and watching, Liu said.

Temu has announced that it has stopped shipping products from China directly to buyers in the United States.

Domestic Market and future Prospects

The Chinese government is encouraging domestic e-commerce platforms to support small businesses in selling to the home market. However, with Chinese consumers being cautious about spending, it will be challenging for factories to match their previous export volumes.

Han Junxiu, who sells novelty socks on Shein and Temu, expressed skepticism about the U.S. government’s ability to enforce tariffs on low-priced packages, which have been entering the United States at a rate of 4 million a day.

“I just don’t think it’s that realistic.”

Han Junxiu, Sock Seller

Han believes that americans will continue to need to buy products from Chinese businesses, particularly items like fluffy socks for pajama parties.

“Where else are they going to buy all this?”

Han Junxiu, Sock Seller