Dozens of garment factories in a manufacturing hub in southern China known as “Shein Village” have gone idle in recent weeks as a result of the Trump administration’s move to impose tariffs and end the so-called “de minimis” exemption that allowed online retailers to sell cheap, duty free goods to Americans.
Businesses located in Guangzhou’s Panyu district, the home of once-bustling workshops that supply the Chinese fast-fashion giant Shein, have gone quiet while piles of unsold garments are stacked inside, according to workers.
Until recently, these goods frequently made their way directly to American consumers who bought them at a fraction of the cost of clothes that are sold by US-based retailers thanks to a tax exemption for international shipments valued at $800 or less.
“Orders from Shein have fallen this year, and our sales are down by a lot,” a worker at one workshop employing around 20 people told the Japanese news agency Nikkei.
Trump’s removal of the de minimis policy, which goes into effect on May 2, means all shipments regardless of size now face import taxes.
The policy had enabled online retailers such as Shein and Temu to keep prices competitive in the American market, crucially underpinning their business model.
The shift places additional pressure on China’s already struggling economy, which has been beset by problems — most notably in its weakening real estate sector.
Economic growth remained stagnant at 5.4% in the first quarter of this year, showing no improvement from the previous quarter.
“Workshops have closed all over the place in just two months,” Li Lianghua, a business owner originally from Hunan province, told Nikkei.
In light of the burgeoning trade war, Shein has encouraged its suppliers to relocate operations to Vietnam as part of a strategy to mitigate the impact of Trump’s policies.
However, smaller suppliers without the financial capacity to relocate have instead shut down completely.
Li himself has ceased accepting orders from Shein, shifting his sales strategy toward direct marketing on social media platforms.
The situation is similarly bleak in Dongguan, a manufacturing city east of Guangzhou where factories supplying leather goods and bags to US companies had already experienced declining business even before Trump’s recent tariff decisions.
One factory in Dongguan lost contracts worth $150,000 annually from four major American clients by the end of 2024.
“We have no prospects of winning new US contracts, so we have to give up,” said Liu Xiaodong, who recently took over the factory.
“There are only risks to doing business with the US now.”
Despite these setbacks, Liu’s business remains viable, generating around $3.4 million in annual sales, mostly from Asian markets.
Liu indicated plans to further increase business within Asia, highlighting the quicker and more affordable shipping options available in nearby markets like Japan and Singapore.
Although Chinese exports to the US surged by over 9% in March as businesses rushed shipments ahead of the new tariffs, industry insiders predict a significant downturn starting this month, when total tariffs of 145% on Chinese imports fully kick in.
Deflationary trends within China could ripple through other markets as Chinese manufacturers seek new customers outside the US, intensifying competition and potentially triggering widespread price reductions.
“Price competition in exports to Asia will intensify,” warned a Chinese manufacturing executive, signaling challenging times ahead for global trade dynamics.