For Richard Chen, a Christmas decoration manufacturer in southern China supplying major U.S. retailers like Walmart and Costco, the latest wave of U.S. tariffs is proving devastating.

“Our orders have been slashed in half compared to last year,” said Chen, who operates in Dongguan, a key manufacturing hub. “We’ve already cut costs to the limit, but to secure orders, we sometimes have to accept lower prices—there’s no way around it,” he admitted, without specifying the extent of these reductions. “We’re operating at a loss.”

On February 4, U.S. President Donald Trump imposed a fresh 10% tariff on $400 billion worth of Chinese exports to the U.S., followed by another 10% increase on March 4, with further retaliatory measures expected on April 2.

This latest trade war feels more punishing than its 2018 predecessor, as Chinese manufacturers and their American partners struggle to absorb the impact. Many low-end producers are already operating with razor-thin profit margins, leaving them little room to cut prices for their U.S. clients. Compounding the crisis, local Chinese governments, once a lifeline for struggling businesses, are now too financially stretched to offer new subsidies.

The Squeeze on Margins

Since the first trade war, wages in China have climbed 2-5%, while raw material costs have risen in certain sectors, and global competition has intensified. Trump's latest tariffs are proving to be the final straw for many small and mid-sized manufacturers.

Brooklyn-based entrepreneur Liz Picarazzi, founder and CEO of Citibin, a trash container company, faces a steep 52.5% tariff on her China-made products. “My entire business model was built around a stable 7.5% tariff rate. This has been a real shock,” she said, referring to the two recent 10% tariff hikes on top of an existing 25% aluminum tariff

“We saw it coming, but no company can realistically absorb an additional 45% in tariffs,” she added.

U.S. retailers, in response, are demanding price cuts. Interviews with 10 Chinese manufacturers and two American retail executives with exposure to Chinese supply chains suggest that customers are pressing for a 10% reduction in prices. Negotiations have so far led to suppliers offering average discounts of 3-7%.

“Some U.S. companies, which source from hundreds of factories, have sent blanket requests for a 10% discount on all products,” said Jonathan Chitayat, head of Asia operations for Genimex Group, a contract manufacturer that generates 70% of its revenue from U.S. clients.

“But the truth is, most suppliers don’t have that 10% to give. Some might manage it for one or two orders, but 7% is the maximum most can afford.

Walmart and Costco did not respond to requests for comment. However, Walmart previously stated, “We will continue to work closely with suppliers to navigate these uncertain times.”
Shifting Payment Terms Amid Uncertainty

Having learned hard lessons in 2018—when some U.S. buyers refused to pay for shipments hit with sudden tariff hikes—Chinese suppliers are now demanding upfront payments rather than waiting 30-90 days post-invoice.

“As soon as Trump was re-elected, we told our U.S. clients that all payment terms would be 100% upfront,” said Dominic Desmarais, chief solutions officer at Liya Solutions, a firm connecting small and mid-sized companies with Chinese suppliers across industries. “We anticipated this tariff nightmare.”

Looming Job Losses and a Bleak Outlook

The renewed tariffs have sent shockwaves through China’s manufacturing sector, and analysts predict large-scale layoffs as factories scale down or shut down entirely.

He-Ling Shi, an economics professor at Monash University in Melbourne, has observed a growing number of businesses shutting their doors. “Many firms have already decided to exit the market,” he noted.

A study from Stanford University on the 2018 trade war found that for every 1% increase in tariffs, Chinese suppliers’ profit margins shrank by 0.35%. That trade war also wiped out approximately 3.5 million manufacturing jobs in China, based on Reuters’ analysis of Dartmouth research.

It remains unclear how severe the damage will be this time around.

Some U.S. buyers believe that Chinese authorities will step in to stabilize the manufacturing sector, as they have in the past through tax breaks, rent subsidies, and other forms of financial aid.

“I’ve visited hundreds, if not thousands, of Chinese factories. Local governments understand their importance, so I expect some level of support,” said a U.S.-based retail executive, who spoke on condition of anonymity.

However, several Chinese suppliers interviewed by Reuters said they have yet to receive any new assistance.

Professor Shi pointed out that many local governments in China are heavily burdened by debt—exacerbated by the country’s ongoing property crisis—making it unlikely they can provide the same level of aid as in 2018.

“If they’re already struggling financially, how can they afford subsidies?” he said. “The central government won’t look favorably on additional debt accumulation.”
The Challenge of Finding Alternatives

Beijing is encouraging exporters to pivot toward alternative markets, including China’s 1.4 billion consumers. However, sluggish domestic demand and industry overcapacity make this a challenging shift.

While Trump’s tariffs are designed to push manufacturing back to the U.S., Citibin’s Picarazzi said that despite exploring domestic production options at least six times, the cost and quality challenges make it infeasible.

She has now decided to relocate her manufacturing to Vietnam and is preparing her customers for price increases.
“This is a completely unfair burden placed on American companies and consumers by their own government,” she said. “Destroying American businesses doesn’t make anyone more patriotic.”