China's small workshops are hurting. Tariffs are only one reason

Observer

2 days ago

GUANGZHOU, China — It was 96 degrees in the shade with high humidity and not a breath of wind on Tuesday afternoon in a factory district in Guangzhou, the home base of China's garment manufacturing.
The sewing workshops that were operating in one neighborhood were sweltering. But roughly half of the hundreds of factories were dark, with their doors closed and none of their usual bustle. Around the area, bright red signs on walls and poles indicated industrial buildings were available for sale or rent.
After exchanging escalating tariffs and export restrictions in the spring, China and the Trump administration moved closer last week to another ceasefire to continue to negotiate over their myriad conflicts. But the new status quo has left high barriers between China's exporters and some of their biggest markets in the United States.
Guangdong province, in southeastern China, and its capital, Guangzhou, have borne the brunt of President Donald Trump's tariffs. China's coastal export sector has been hit twice. It is paying tariffs of 30% or more on shipments to the United States — extraordinarily high by historical measures — on top of previous tariffs. And exporters to the United States no longer enjoy duty-free treatment for packages worth $800 or less.
In Guangzhou, thousands of small factories near the Pearl River used to supply the cheap clothing that e-commerce giants such as Shein and Temu shipped to American homes. Streets in the city's factory districts are less crowded, while managers and workers complain that many orders have evaporated.
Some workers are going door to door and to employment fairs, looking for jobs.
'They are from other factories, or their work is not so good, so they come here with nothing to do,' Lai Changxing, a worker at a factory making dress shirts and T-shirts, said while pouring himself a Coca-Cola and trying to cool off during a work break.
Hu Ke, a worker at another garment factory, said orders had halved since spring. 'I've been doing this for over a decade,' he said. 'It's definitely not going well this year.'
China's exports to the United States from April through June dropped 23.9% from a year earlier, according to the General Administration of Customs in China. Exports of Chinese goods to developing countries have been rising, sometimes for transshipment onward to the United States.
But Trump's tariffs appear to have worsened long-term trends that have already been eroding China's light industry export sector, as the country shifts toward higher-value industries including electric cars and solar panels.
At the same time, the storefront factories in Guangzhou face rising costs that are difficult to avoid. Workers are demanding that air conditioning be installed near the rows of sewing machines and fabric-cutting tables.
Until three years ago, few factory owners bothered with air conditioning, said Li Aoran, the manager of a workshop that makes pajamas, pants, and dresses. But as China has grown more affluent, workers have become less willing to endure extreme heat for long hours toiling under rows of fluorescent lights.
'Now that people's living standards have improved, there are higher expectations for better working conditions,' Li said.
He paid $3,000 last year to install three large air conditioners for his clothing workshop. His electricity bill has increased $1,000 a month, adding about 5% to his overall costs, he said.
Then his orders plummeted this spring when Trump began limiting access to the American market. So Li, like many factory managers, has slashed his payroll. He had nearly 50 workers at the end of last year, and now employs 20.
Much of the labor force in factories like Li's is made up of migrant workers who often travel long distances from their hometowns to Guangzhou for work. Li and other managers hired a lot fewer workers this spring after the Lunar New Year holidays, shrinking their workforces mainly through attrition in a sector where laborers often change jobs every three months.
Even as some factories are still hiring, broad changes in expectations about pay are adding to costs.
Unskilled workers, who are often younger and doing difficult jobs like ironing finished shirts, are demanding higher wages — at least $1,100 a month, said Yang Daoyong, the manager of a shirt factory. But skilled sewing machine operators, who are typically older and have few other options, are accepting a slight decline in pay, to about $1,400 a month, he said.
Decades of rapid housing construction have resulted in low rents, typically a couple of hundred dollars a month, making it possible for workers to survive on these paychecks while also having enough left over to send to their families. Their paychecks, which include considerable overtime, are still a big change from a quarter-century ago, when wages were often around $100 a month.
Falling prices for finished garments are the biggest challenge for manufacturers, as a glut of production has driven down prices. Yang said he had lowered the wholesale price for each shirt to $1.40 from $1.67 a year ago. His overall costs keep rising, though, so he tries to sell more shirts at ever-thinner profit margins, he said.
'The domestic market is like a rat race,' Yang added.
The fading of China's sweatshop sector mirrors a rapid shift in the country's labor force, which is shrinking and becoming better educated. The number of young people turning 18 each year has dropped to fewer than 16 million, from 25.5 million two decades ago. A further decline is coming: The annual number of births has fallen below 10 million in each of the past three years.
At the same time, China has rapidly expanded its university system. Two-thirds of the young men and women who turned 18 last year enrolled in a university or college, up from only a fifth in 2005. Unemployment in China has been a deeper problem among recent college graduates, many of whom have had to take jobs as delivery drivers in big cities. Unemployment is less visible among the dwindling ranks of middle-aged workers who still toil in Guangzhou's sewing workshops.
Countries such as Vietnam have been quick to absorb many of the low-wage jobs now fading away in China.
All of this has workers and managers alike hoping that trade relations with the United States will stabilize soon. 'I hope the situation will improve and our business will be better,' Li said.
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