How China’s Struggling Small Workshops and Tariffs Impact Global Supply Chains: Opportunities for Investors and Entrepreneurs
Guangzhou’s Garment Sector Faces Challenges Amid High Temperatures and Tariffs
GUANGZHOU, China — On a sweltering Tuesday afternoon, temperatures soared to 96 degrees with high humidity in Guangzhou, a notable hub for China’s garment manufacturing. Many sewing workshops in the area were uncomfortably hot, while about half of the hundreds of factories were closed, their doors shut and activity stifled. Bright red signs posted on walls and poles signaled that several industrial buildings were available for sale or rent.
Following an exchange of increasing tariffs and export restrictions, China and the Trump administration appeared to edge closer to a ceasefire last week, seeking further negotiations on their numerous disputes. However, the current environment has erected significant barriers between Chinese exporters and key markets in the United States.
Guangdong province, especially Guangzhou, has felt the most impact from President Donald Trump’s tariffs. Coastal exporters are now grappling with tariff rates exceeding 30% on shipments to the U.S., compounded by previous duties. Moreover, the previously duty-free treatment for packages valued at $800 or less has been revoked.
Once bustling with activity, the small factories near the Pearl River that provided affordable clothing to e-commerce giants like Shein and Temu are now noticeably quieter. Factory managers and workers report that many orders have dissipated, prompting some workers to seek employment at various fairs or simply go door-to-door.
“They come here with nothing to do,” stated Lai Changxing, a worker at a factory producing dress shirts and T-shirts, during a break while enjoying a Coca-Cola to cool off.
His colleague, Hu Ke, lamented a significant drop in orders, noting that they had been cut in half since the spring. “I’ve been doing this for over a decade; it’s definitely not going well this year,” he remarked.
According to China’s General Administration of Customs, exports to the U.S. from April to June plummeted by 23.9% compared to the previous year. While exports to developing countries saw some growth, often as part of transshipment efforts to reach the U.S., the tariffs imposed by Trump have exacerbated existing trends negatively impacting China’s light industry as the nation shifts focus to higher-value sectors like electric vehicles and solar technology.
Additionally, rising operational costs are challenging stores and factories. Workers in the region are increasingly demanding air conditioning in workspaces. As Li Aoran, manager of a pajama and dress factory, pointed out, few owners considered air conditioning until recently. However, as living standards improve, workers are less inclined to endure extreme conditions under fluorescent lights.
Li invested $3,000 last year to install three air conditioners, which subsequently increased his monthly electricity expenses by $1,000, raising his overall costs by approximately 5%. This investment, however, came just before a significant drop in orders when access to the American market became restricted, leading him to reduce his workforce from nearly 50 employees to just 20.
Many workers in factories like Li’s are migrants who travel great distances for work. Following the Lunar New Year holidays, factory managers hired significantly fewer workers this spring, shrinking their teams primarily through attrition, as laborers often change jobs every few months.
While some factories continue to recruit, changing pay expectations are adding to operational costs. Unskilled workers, often younger, are demanding higher wages of at least $1,100 a month, whereas skilled sewing machine operators, typically older with fewer options, are accepting a slight decrease in pay to around $1,400 per month.
Thanks to decades of rapid construction, housing costs remain relatively low, typically a few hundred dollars monthly, allowing workers to sustain themselves while sending money home. Despite the significant overtime, wages remain a notable increase from a quarter-century ago, where monthly salaries barely touched $100.
Manufacturers face considerable pressure from falling prices for finished garments caused by overproduction, forcing operational adjustments. Yang Daoyong, a manager at a shirt factory, noted a price reduction for each shirt, now at $1.40 down from $1.67 last year, while overall costs continue to rise.
"The domestic market feels like a rat race," Yang remarked.
This decline in China’s garment sector reflects broader changes in its labor market, which is contracting and becoming more educated. The number of young individuals entering the workforce has fallen to fewer than 16 million annually from 25.5 million two decades ago, with further declines expected as births nationwide have dipped below 10 million in recent years.
Simultaneously, China has rapidly expanded its university system. Last year, two-thirds of the youth cohort enrolled in higher education, a significant increase from just 20% in 2005. Young graduates now face high unemployment rates, often resorting to jobs like delivery driving in major cities, while job scarcity is less visible among the aging workforce remaining in Guangzhou’s factories.
Countries like Vietnam are poised to absorb many low-wage jobs that are gradually leaving China. Amid these ongoing economic changes, both workers and factory managers remain hopeful for a stabilization of trade relations with the United States. “I hope the situation will improve and our business will be better,” Li expressed.
This report originally appeared in The New York Times.
Special Analysis by Omanet | Navigate Oman’s Market
The shifting dynamics in China’s garment manufacturing due to escalating tariffs and changing labor conditions present both risks and opportunities for businesses in Oman. As Chinese exports falter, Oman could position itself as a viable alternative production hub, especially for low-wage sectors, while also needing to adapt to rising costs and expectations for improved working conditions. Smart investors should consider entering sectors that leverage Oman’s strategic location and labor dynamics, capitalizing on the ongoing shifts in global supply chains.
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