CHINA FASHION BUSINESS

▼The following discussion from the Cold Fashion Circle is a summary of industry issues. These insights are the product of collective wisdom and do not represent the personal views of Leng Yun. It is hoped that this discussion will benefit more industry professionals.

Current Status and Responses to U.S. Orders

1. Adjustments to Garment Styles and Order Quantities

The impact of U.S. tariff hikes on the garment manufacturing industry is becoming increasingly evident. A garment export company shared its experience: in February this year, it had around 100,000 orders from U.S. clients, with profits down year-on-year but still manageable to maintain customer relationships. As tariffs increased, the company faced repeated requests from clients to cover the additional tax costs. This mid-sized supermarket client had orders in 2024 that were originally profitable, but in the past six months, only 30% of the orders have been retained, with profits significantly reduced.

There have also been noticeable changes in garment styles: women’s and children’s clothing have seen the most significant adjustments, with almost no styles retained, and all children’s clothing styles have been canceled. In contrast, men’s clothing styles have changed relatively less, and infant clothing has remained relatively stable. Cost – oriented design changes have also emerged. For example, the “2 – IN – 1” style for infants and toddlers has been changed to a reversible style, which is cheaper.

Behind these differentiated adjustments lie certain reasons. Styles for older children are relatively simple and can be easily shifted to other regions. However, adult and infant clothing, due technology limitations in Southeast Asia, are not easily transferable. Particularly for complex categories like sportswear, jackets, and down jackets, which require a robust supply chain, are the last to consider for industrial relocation. Among them, cotton – padded jackets, being large – volume “bulky goods,” also incur high costs for material export to Southeast Asia.

2. Adjustments to Final Sales Prices and Transportation Methods

In terms of price adjustments, orders that have entered the bulk processing stage have directly replaced price tags, with the tariff increase fully passed on to the end – product price. Given that the brand premium multiplier for clothing is between 3 and 5 times, a product originally priced at $100 has risen to around $120, an increase of about 20%. The export price for factories is typically around $20.

Trade methods have also undergone changes. Starting from February, clients have continuously pressured for a shift from FOB to LDP/DDP terms. LDP/DDP covers FOB prices, destination – country tariffs, freight, and customs clearance fees, requiring the shipping party to bear all costs and responsibilities, with the receiving party only needing to take delivery at the warehouse. This essentially shifts the tariff – related risks to the supplier. While many export companies have switched to LDP, some have rejected this approach due to policy uncertainties.

Some anomalies have emerged in the market. Orders from large U.S. e – commerce platforms like Amazon have actually increased, possibly due to a reduction in cross – border small – package shipments or consumers stockpiling goods in advance. Meanwhile, suppliers in Dongguan and Guangzhou have begun receiving invitations from foreign brands to relocate production bases, offering prices 5% higher than domestic rates as an incentive.

3. Exploration of Other Tax – Avoidance Methods

In terms of risk avoidance, various attempts have been made within the industry. Some enterprises have responded by altering the declared categories of their products. For example, adding a water – proof coating to garment fabrics and declaring them as raincoats. Others have considered transshipment trade, such as shipping goods to South Korea and transferring them to another container after changing ships. However, these operations require strict preconditions, such as lenient customs inspection and quarantine checks.

Feedback from the U.S. market indicates that residents in major cities and developed areas (typically under Democratic control) generally oppose the tariff policies. These regions have seen large – scale protests almost every weekend. People are concerned that the cost of tariffs will ultimately be borne by consumers through rising prices. However, as the policies have just been implemented, the full impact has not yet materialized.

Yun friends believe that the outward relocation of the supply chain is an inevitable trend, similar to the low – end industrial relocation of Japanese manufacturing in the 1960s. While a 20% price increase might be acceptable, the real problem lies in the potential for a continuous cycle of price hikes. This could lead to a domino effect, with rising costs in basic energy and other sectors ultimately reducing consumers’ disposable income and causing a decline in non – essential purchases. Although the current 30% tariff leaves some room for the supply chain to absorb the impact, in the long run, the only viable path is to pursue branding and high – end routes. A business model solely reliant on markup profits will struggle to weather such storms.

Long – Term Development of the U.S. Market

1. Current Cross – Border E – Commerce Tax Rates and Changes

In recent years, China’s manufacturing sector has been undergoing intelligent industrial upgrading. The trend of industrial relocation began as early as 2014, with knitted products being the first to shift. Currently, there seem to be countermeasures for any policy, but the key is to find a breakthrough. However, these short – term measures are not sustainable in the long run.

For the garment export industry, the U.S. market has always held an irreplaceably important position, characterized by large order volumes and reliable customer credit. Letters of credit from Europe and the United States are also highly dependable. However, recent surveys indicate that the vast majority of enterprises have canceled U.S. orders. Some enterprises engaged in aquatic product exports reported that the Chinese market accounts for 35% of their business, and these orders cannot be easily transferred.

In exploring alternative markets, Mexico has garnered attention as it has not been subject to additional tariffs. However, the local labor system is relatively strict, requiring weekly wage payments and imposing high costs for dismissing workers. In contrast, in Cairo, Egypt, the hourly wage cost is approximately $1. Although production efficiency is lower than in China, the total cost advantage is evident when considering tariff differences. Some enterprises have already obtained land approval in Cairo and are in the process of establishing factories.

Puerto Rico presents unique characteristics: local residents have strong purchasing power and a high willingness to consume. The market is filled with products manufactured in Brazil and Colombia, yet raw materials primarily depend on imports from China. Apart from airports and tourist attractions, other locations, including hospital signboards, use only Spanish, with no English signage. Latino workers typically demand to be paid weekly or biweekly, as they are accustomed to “living paycheck to paycheck” and seldom save.

The tariff policies of the Trump administration differ from previous ones, notably in their targeting of the global industrial chain. It is understood that some enterprises had visited Latin America for exploration before the pandemic and found local small – commodity markets and garment wholesale markets to resemble those in China, with similar clothing styles. However, it is believed that this situation may change with political shifts, especially in the midterm elections 20 months later. Should the ruling party lose control of Congress, many policies may become difficult to sustain.

Regarding manufacturing reshoring, the U.S. has seen an increase of about 20% in factory reshoring, primarily in the high – end manufacturing sector. Labor – intensive and highly polluting industries are unlikely to return due to cost factors, with only specific sectors like construction and retail still requiring a large number of entry – level workers. Historically, the U.S. has experienced a wave of manufacturing reshoring, but it ultimately failed to take hold.

China’s manufacturing sector is currently undergoing transformation and upgrading, with the relocation of low – end industries to Southeast Asia being an inevitable trend. However, China’s unique supply – chain advantages are difficult to replicate. These advantages are built on a complete industrial cluster, abundant land resources, diligent and pragmatic labor force, and years of accumulated intelligent manufacturing capabilities. Take the garment industry as an example. The speed of sample production for printing and accessories is fast, the spot market is well – developed, and supply – chain efficiency has significantly improved compared to earlier periods.

2. Analysis of Cross – Border E – Commerce Trends Based on DHgate Traffic Changes

In the cross – border e – commerce sector, the impending end of the small – package tax exemption policy has drawn attention. It is argued that imposing tariffs could significantly increase the U.S. government’s labor costs and system processing burdens, potentially exceeding the actual tax revenue. Currently, inventory in the U.S. can generally sustain 2 – 3 months, and it is expected that by May, the terminal consumer market will be affected. It is worth noting that the U.S. Customs system once crashed as it had never handled such a large volume of taxable products.

Among domestic cross – border e – commerce platforms, DHgate and Necer have adopted different business strategies. Necer focuses on direct supply from major brand factories, allowing consumers to customize or lightly customize products and indicating the brand factory information. The platform had strict early requirements for factories and customer service, resulting in a good reputation for product quality. However, it remains relatively unknown in the B2C field.

3. Operability and Prospects of Overseas Factory Establishment

Looking ahead, the next 20 years may present a significant window of opportunity for China. Over the past 40 years, China has primarily focused on domestic development, and Chinese enterprises still have substantial room for improvement in global penetration compared to their European and American counterparts. In recent years, Chinese people have made remarkable achievements on the international stage, with leading figures emerging in fields such as chips, film, medicine, and AI.

In terms of strategies to penetrate the U.S. market, in addition to the traditional path of overseas factory establishment, the following directions can be explored:

    (1) Enhance innovation capabilities and achieve what is difficult for others to replicate. For instance, establish an unshakable market position in a niche area like YKK zippers.

    (2) Develop smart manufacturing to achieve small – batch rapid response and reduce inventory pressure. This not only improves production efficiency but also enables more flexible market demand responses.

    (3) Innovate in materials and processes to establish irreplaceability. Build competitive barriers and increase product value – added through technological innovation.

It should be noted that China’s manufacturing advantage has evolved from a simple labor cost advantage to a comprehensive advantage of efficiency and cost – effectiveness. Although the path of innovation is relatively challenging, high thresholds are necessary to form a true moat. Currently, the priority is to quickly adjust U.S. orders within the possible scope, minimize losses, and ensure delivery. However, in the long run, enhancing innovation capabilities and establishing core competitiveness are the keys to sustainable development.

PS: The translation is done by AI.