US-China Tariff War: China’s Export Manufacturing Faces Unprecedented Crisis

Meta Description: The US-China Tariff War has pushed China’s export manufacturing sector to the brink. Discover how rising tariffs, rerouted trade, and collapsing orders are threatening business survival.

The US-China Tariff War’s Impact Has Been Severely Underestimated

Amid the ongoing US-China Tariff War, China’s export manufacturing sector is facing an unprecedented crisis. The US-China Tariff War has reshaped global supply chains and placed immense pressure on Chinese exporters. Caught off guard by soaring tariffs, many exporters to the US market have already suspended operations. Numerous business owners remain in a wait-and-see mode, but if the situation does not improve soon, closure and bankruptcy might be their only fate.

Currently, the cumulative tariff rate imposed by the United States on Chinese exports has soared to 145%. Additionally, the $800 de minimis exemption for cross-border e-commerce has been revoked permanently.

Some argue that since China-US trade now accounts for only 14% of China’s total foreign trade, the overall impact is limited. Others point to Yiwu, where less than 10% of businesses serve the US market—only around 3,000 out of 75,000 vendors in the Yiwu Small Commodity Market.

However, this view is misleading. Although the direct share of China-US trade appears to have declined, a significant volume of goods is now re-exported via third countries.

Vietnam as a Case Study:

• China’s exports to Vietnam rose from $83.9B in 2018 to $144B in 2024.

• Vietnam’s exports to the US surged from $49B to $196B in the same period.

• Meanwhile, China’s direct exports to the US dropped from 19.2% to 14.3%.

These abnormal patterns suggest that many Chinese exporters are rerouting shipments through third countries to circumvent tariffs. Similar re-exporting trends are found in Chinese enterprise zones abroad, and even in a “Yiwu Commodity City” in Mexico. These facts reveal that China’s real export dependency on the US is far higher than surface data suggests.

A Wave of Shutdowns Hits US-Focused Export Manufacturers

High tariffs have caused many Chinese manufacturers, previously reliant on US orders, to halt production. The hardest-hit regions are the Yangtze River Delta and the Pearl River Delta.

Exporters have received notices from US clients to pause or cancel orders, and even new contract negotiations are falling through. The fallout is widespread.

For instance, Shanghai Port’s US-bound container volume has sharply declined. From mid-April to mid-May, dozens of sailings were canceled, with container capacity on the China-US route dropping by 40%, from 376,000 TEUs in early April. Port congestion and customs clearance cancellations are now routine.

Factories that once shipped dozens of containers daily to the US now send only a few. Business owners are hoping for relief, but current trends suggest the tariff war is far from over. The real question: how long can they endure?

Thin Margins, Tight Cash Flow: Survival Under Pressure

The manufacturing industry traditionally operates on thin profit margins, often less than 5%. Export-related services like cross-border e-commerce, while slightly better with gross margins around 30%, are also struggling—145% tariffs mean most businesses are losing money on every order.

Business owners still need to pay employees and overhead costs. Many only have a few months of cash flow left. Without change, a wave of bankruptcies may hit as early as June. Some have already closed—what we see now may be just the beginning.

Surface-Level Solutions Don’t Work

Some suggest pivoting to the domestic market or finding new export destinations. But for most businesses, these are unrealistic:

• Domestic Market Saturation: Fierce competition and stagnant demand dominate the domestic landscape. Many manufacturers moved to exports precisely because the local market growth has stalled.

• Other Export Markets Can’t Replace the US: US buyers offer better payment terms, higher margins, and some products are tailored for the US market. Shifting markets means retooling production lines, which many SMEs simply cannot afford.

The Real Danger: Permanent Loss of Orders

If high tariffs persist, today’s production halts will escalate into a lasting unemployment and supply chain crisis.

Major US tech firms have already begun restructuring their supply chains:

• Apple, Meta, HP, Dell are expanding in Vietnam and Southeast Asia.

• Apple plans to produce at least 50 million iPhones in India by 2024.

• Many iPhones, MacBooks, and iPads for the US market will now be assembled outside China.

• Suppliers are instructed to airlift components from China to Southeast Asia, effectively relocating entire supply chains.

As one executive bluntly said:

“It’s like the customer is sweeping up all inventory and flying it out of China.”

Urgent Action Needed to Avert a Broader Crisis

If no action is taken, the next wave of factory closures will unleash mass unemployment and severe economic fallout. The cost of managing this crisis later will far exceed the investment needed to support struggling manufacturers now.

Local governments and policymakers must act swiftly. Targeted relief, financial assistance, and operational support can help stabilize the sector before it collapses beyond recovery. Delay will only worsen the damage.