Many Chinese factories have halted production, others are livestreaming sales domestically or are looking for new markets as US tariffs take effect.
"I know of some factories that have furloughed half their staff for a few weeks and stopped most production. While this hasn't happened on a large scale, it's happening in key export hubs like Yiwu and Dongguan. There are concerns that this could spread," said Cameron Johnson of Shanghai-based consultancy Tidalwave Solutions. The hardest hit are factories that make toys, sporting goods, and low-cost products.
These businesses hope that import tariffs will eventually be reduced, helping orders recover. Goldman Sachs estimates that about 10-20 million Chinese workers are currently involved in exporting to the US.
After several rounds of tariffs, the US has now imposed an additional 145% tax on all products from China. Beijing has retaliated with a 125% tax on US goods. Recently, US President Donald Trump has repeatedly affirmed that trade negotiations with Beijing are ongoing. Meanwhile, China has denied this.
Ash Monga, founder and director of supply chain management company Imex Sourcing Services in Guangzhou, said the impact of the import tariffs this time is much larger than the pandemic. For small businesses with a capital of several million dollars, such a sudden increase is too much to bear and could force them to close.
Monga said that demand from customers and businesses importing Chinese goods is currently very high. Therefore, he will launch a "Tax Support" website to help small businesses find suppliers outside of China.
The disruption to business is forcing Chinese exporters to try new sales strategies. Woodswool, a sportswear maker based in Ningbo, has recently shifted to selling domestically via livestreaming.
"We have received more than 30 orders worth more than 5,000 yuan ($690) in just one week of livestreaming. All orders from the U.S. have been canceled," Li Yan, Woodswool's factory manager and brand director, told CNBC.
The company has been selling to customers in Europe, Australia and the U.S. for more than 20 years. Previously, more than half of its output went to the U.S., so it will have to cut some capacity for the next two to three months until it can build up new markets, Li Yan said.
Livestreaming sales have been promoted by Chinese tech giants, at the urging of officials, to help exporters shift to the domestic market. For Woodswool, it is selling online through search giant Baidu.
"I chose to livestream using Baidu's virtual characters because it can be deployed within two weeks without the cost of building a studio and hiring staff," Li explained.
Baidu said it has supported at least a few hundred businesses to launch domestic e-commerce channels. Earlier this month, Baidu announced that it would provide free artificial intelligence tools, such as the "Huiboxing" virtual character, to 1 million businesses. These virtual characters simulate humans, using AI to sell products and communicate with customers. Baidu claims that the return on investment when using virtual characters is higher than that of real people.
E-commerce platform JD.com also has a program to support export businesses. The company pledged to spend 200 billion yuan ($27.22 billion) to buy Chinese goods originally intended for export and find ways to sell them domestically. Food delivery company Meituan also announced that it would support exporters to distribute domestically, but did not specify a specific amount.
Still, the $27.22 billion represents only about 5% of the $524.66 billion in goods China will export to the US in 2024.
However, shifting domestic sales faces challenges. “Some companies have told us that with a 125% tariff, their business model is no longer viable,” said Michael Hart, president of the American Chamber of Commerce in China. “Competition among Chinese companies has also increased in the past week.”
He expects tariffs on both the US and China to remain in place to some extent. However, some products will be exempt. “That’s exactly what they’re aiming for,” he said.
Still, products designed for suburban consumers in the US may not be suitable for apartment dwellers in China. Many manufacturers have taken to Chinese social media platforms like Rednote and Douyin (the domestic version of TikTok) to appeal to domestic consumers. But this is not a long-term strategy, said Ashley Dudarenok, founder of marketing consultancy ChoZan.
Fewer Chinese companies are considering selling to the US through third countries, fearing increased scrutiny of re-exports. So they are shifting production to India or Southeast Asia, while others are looking. To find customers in Europe and Latin America.
Liu Xu, who runs Beijing Mingyuchu, sells bathroom products to Brazil, has recently been hit by volatile exchange rates and high container shipping costs. However, Liu expects trade with Brazil to be less affected by US-China tensions.
Between 2018 and 2024, China's exports to Brazil doubled. Exports to Ghana have also doubled.
During the pandemic, Ghana-based Cotrie Logistics was set up to help businesses source supplies, coordinate cargo when ports are congested, and build stable logistics routes. The company, which trades primarily with China, now generates between $300,000 and $1 million in annual revenue.
Cotrie CEO Bright Tordzroh said tensions between Washington and Beijing have prompted many companies to look for supply and manufacturing locations outside the US. He expects this to open up many opportunities for Cotrie.
(according to CNBC, Reuters)