[UNITED STATES] Richard Chen, who produces Christmas decorations in southern China for US stores such as Walmart and Costco, has lost orders due to punishing US tariffs.
"The orders are half of what they were last year," said Chen, who works in the manufacturing city of Dongguan. He is currently in survival mode. "There's no more room to lower costs. But in order to get orders, we sometimes have to accept price reduction...we have no alternative," Chen added, omitting to expand on the cuts he had agreed to.
The ripple effects of these tariff pressures extend beyond individual businesses. Entire supply chains are being reconfigured as manufacturers scramble to stay competitive. Some smaller factories in Dongguan and Shenzhen have already begun consolidating operations or shifting focus to domestic and non-US markets, further straining an ecosystem built on high-volume exports.
“We’re losing money.”
On February 4, US President Donald Trump imposed a fresh 10% tariff on the $400 billion in Chinese goods exported to the US yearly, with an additional 10% tax announced on March 4 and more reciprocal tariffs likely on April 2.
Chinese suppliers and their American clients are finally coming to terms with the gloomy truth that this trade war will impact harder than during Trump's first term in 2018.
Unlike the 2018 tariffs, which primarily targeted higher-value industrial goods, the latest rounds affect consumer staples like electronics, textiles, and holiday decorations—categories where profit margins are already slim. This shift has left many suppliers with little room to maneuver, forcing some to consider relocating production to Southeast Asia or Mexico, though such moves come with their own logistical and financial hurdles.
This time is different because low-end manufacturers are already battling with razor-thin margins, so they cannot lower prices to help their US clients, and local Chinese governments that could have provided assistance to protect jobs are usually too cash-strapped to afford new subsidies.
Suppliers estimate that wages have increased by 2% to 5% since the first US-China trade battle in 2018, while raw material costs have risen in some industries and international competition has increased, making Trump's current tariffs the final straw for many low-end manufacturers.
Compounding the issue, the Chinese yuan’s relative stability against the dollar has denied exporters the cushion of a weaker currency, which in past trade disputes helped offset some tariff impacts. Meanwhile, rising labor costs in Vietnam and Indonesia—popular alternatives for manufacturing relocation—mean that even shifting production may not deliver the savings US buyers demand.
Liz Picarazzi, the Brooklyn-based founder and CEO of trash box company Citibin, stated that her goods produced in China are now subject to 52.5% tariffs, and she can no longer afford to manufacture there.
"My entire business has been built around a long-term rate of 7.5%. It's been a real shock," she said, referring to two rounds of 10% tariff increases on Chinese imports, as well as a 25% worldwide aluminum tariff. "We knew this was coming but there's no way any company can mitigate an additional 45% in tariffs."
Customers in the United States want a 10% price decrease, according to interviews with ten Chinese manufacturers and exporters, as well as two US-based retail executives with Chinese supply chain exposure. Ongoing negotiations are yielding average discounts of 3% to 7% from suppliers, they said.
Behind the scenes, some US retailers are exploring “tariff engineering”—redesigning products to qualify for lower-duty categories—while others are stockpiling inventory ahead of expected tariff hikes. However, these strategies offer only temporary relief, and smaller businesses, lacking the resources for such maneuvers, face the brunt of the financial strain.
"You have companies in the United States who have hundreds of factories that work for them sending out a mass letter asking for a blanket 10% reduction from all suppliers on all products," said Jonathan Chitayat, the Asia boss of Genimex Group, a contract manufacturer for a range of products that derives 70% of its revenue from US customers.
"To be honest, most people do not have ten percent to donate. Maybe they can accomplish it for one or two orders, but 7% appears to be the maximum for most people."
When contacted about their negotiations with suppliers following the application of new tariffs, Walmart responded that "we will continue to work closely with them to find the best way forward during these uncertain times."
On the Chinese side, vendors who were burned in 2018 when some US clients refused to pay for container-loads of goods subject to higher tariffs are now demanding payments up front rather than waiting 30 to 90 days after delivering an invoice.
“We told our US clients as soon as Trump got elected that the payment terms were 100% upfront with purchase order because we anticipated this tariff nightmare,” said Dominic Desmarais, chief solutions officer at Liya Solutions, which connects small and medium-sized companies with suppliers in China making everything from toys to furniture and titanium products.
Tariffs have jolted China's industrial heartland, potentially leading to significant layoffs as companies close or shrink, according to analysts and businesses. He-Ling Shi, an economics professor at Monash University in Melbourne, believes Chinese manufacturers are under a variety of pressures. "I have noticed that quite a lot of enterprises have already decided to close their doors," he remarked.
Following 2018, Stanford University conducted academic research that found that each 1% tariff increase reduced Chinese supplier margins by 0.35%. The trade war also resulted in the loss of almost 3.5 million Chinese manufacturing jobs, according to Reuters calculations based on Dartmouth estimates of the percentage of manufacturing jobs lost by China.
Analysts believe it is too early to quantify the toll this time. Some US customers fear that Chinese authorities would intervene to help their local manufacturing industries with extra tax breaks, rent and utility subsidies, or other assistance, as they have done in the past, notably in 2018.
"I have been on hundreds, maybe thousands of Chinese factory visits, and understanding how important these factories are to a local government, there will absolutely be support when push comes to shove," a US-based retail executive said.
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