Chinese Manufacturers Halt Production and Seek New Markets as Tariffs Bite

Chinese factories are beginning to scale back production and explore new markets in response to escalating U.S. tariffs, according to company representatives and market analysts. The slowdown is already affecting employment in some regions.

Several factories have temporarily shut down lines and sent half their workforce home, especially those producing toys, sporting goods, and low-cost consumer items. The impact, though not yet widespread, is becoming increasingly visible in major export hubs like Yiwu and Dongguan, raising concerns that it could worsen if conditions persist. Many companies are hoping for a rollback in tariffs but are, in the meantime, furloughing employees and idling production.

Estimates suggest that between 10 million and 20 million workers in China are linked to industries reliant on exports to the U.S., out of the country's 473 million urban workers.

The latest series of tariff increases, which in some cases more than doubled duties on Chinese goods, has added fresh strain. Although U.S. officials have hinted at the possibility of trade discussions, Chinese authorities have denied that negotiations are underway.

Industry experts note that the impact of the new tariffs is even more disruptive than the Covid-19 pandemic was. For smaller businesses operating with limited financial reserves, the sudden tariff hikes are threatening survival, forcing some out of business altogether.

In an effort to mitigate losses, Chinese exporters are adopting new strategies. For example, Woodswool, an athleticwear producer based near Shanghai, has shifted focus to domestic online sales via livestreaming platforms. Within a week of launching, the company secured over 30 orders, generating modest but encouraging revenues. Yet challenges remain: all of Woodswool’s U.S. orders have been canceled, and part of its production lines are expected to remain idle for several months while it seeks new markets.

Chinese tech companies are stepping in to support exporters' shift toward domestic sales. Woodswool, for instance, partnered with Baidu’s AI-powered livestreaming platform, using virtual hosts to quickly launch online stores without the need for expensive studios or staff. Baidu announced plans to subsidize and provide free AI tools to one million businesses, aiming to help redirect export-focused products to Chinese consumers.

Other major tech companies, including JD.com and Meituan, have also pledged support. JD.com committed to purchasing 200 billion yuan worth of unsold goods originally intended for export and reselling them domestically. However, even these efforts barely scratch the surface when compared to the $524 billion China exported to the U.S. last year.

Despite some assistance, many businesses are finding it difficult to adapt. Some manufacturers report that their products—originally designed for suburban American consumers—are not well suited for urban Chinese markets. Others are experiencing growing fatigue among Chinese consumers despite marketing efforts through platforms like Red Note and Douyin (China’s version of TikTok).

Additionally, due to increased scrutiny from U.S. authorities, fewer Chinese companies are attempting to reroute goods through third countries. Instead, many are pivoting operations to Southeast Asia and India, or shifting focus to Europe and Latin America, where demand remains more stable.

Some exporters had already diversified their market base before the recent tariff escalation. Beijing-based e-commerce firm Mingyuchu, which sells bathroom products to Brazil, reports steady trade despite challenges like exchange rate fluctuations and high shipping costs. China's exports to Brazil and Ghana have both doubled since 2018, offering alternative growth opportunities.

Ghana-based Cotrie Logistics, founded during the pandemic to support China-Africa trade, has also benefited from the broader shift. The company now generates between $300,000 and $1 million annually and sees continued opportunities as businesses increasingly look beyond U.S. markets for sourcing and logistics solutions.

While the immediate effects of the U.S.-China tariff war are visible, the longer-term outcome may be a profound reshaping of global trade patterns, with Chinese companies diversifying more aggressively than ever before.