GUANGZHOU – The clickety-clack of sewing machines rings through factory after factory in Panyu, as rows of workers churn out all manner of blouses, skirts and dresses that will eventually clothe people living as far away as the United States.
Nearby, goods are stacked on floors and tabletops, wrapped in plastic emblazoned with the block letters “SHEIN”.
The garment district of Panyu in the southern city of Guangzhou is home to thousands of clothing workshops, many of which supply to the fast fashion giant and other e-commerce platforms.
But these factories now face looming pressure from the administration of US President Donald Trump, whose impending repeal of a crucial trade provision – which has allowed Chinese e-commerce platforms like Shein and Temu to flourish – threatens to squeeze their business.
Mr Trump will scrap the de minimis exemption, as it is called, which allows low-value packages of under US$800 (S$1,070) – including fast-fashion hauls sent to shoppers from Shein or Temu’s factories – to enter the US duty-free and via an expedited customs clearance process.
The President had, on short notice, suspended the provision for packages from China with effect from Feb 4, but on Feb 7 delayed its implementation until the US puts the requisite processing systems in place.
Without the de minimis exemption, purchases from China would be subject to standard duties which vary by clothing type, and additional tariffs including Mr Trump’s most recent of 10 per cent. Additional processing fees would also apply, as shipping companies deal with more onerous customs clearance requirements.
If US consumers decide to spend their money elsewhere due to higher costs and slower delivery times, it would be a blow not just to the e-commerce giants, but also to the small manufacturers who supply them.
Shein and Temu alone were likely responsible for more than 30 per cent of all de minimis packages shipped to the US daily, according to a 2023 report by a US House select committee. The US was Shein’s largest market in 2023, accounting for about 28 per cent of its sales, GlobalData estimates cited by Reuters showed.
Even before Mr Trump’s shock short-notice announcement, the de minimis exemption had already been in the US government’s crosshairs, and the Chinese e-commerce giants had begun making tactical moves to ensure business continuity in this key market.
For instance, Temu has stepped up its use of warehouses in the US, so that stocks – on which duties are paid – can quickly reach consumers without customs delays.
Singapore-headquartered Shein, which leverages short production cycles for its fast fashion goods, is less suited to such a business model and has instead been expanding its supply chain into places like Turkey and Brazil.
Bloomberg further reported on Feb 10 that Shein has asked some of its top suppliers to set up new production capacity in Vietnam, although a company spokesperson denied this.
Meanwhile, Chinese producers are feeling the heat from the impending de minimis repeal.
In Nancun, a neighbourhood in Panyu sometimes dubbed “Shein village”, small factory owners whom The Straits Times spoke with conveyed some anxiety that the rule change could dent their business.
Still, they remained confident in the strength of China’s garment supply chain which would keep them competitive against foreign manufacturers, and in their ability to weather or work around the US’ policy change.
The garment district of Panyu in Guangzhou is home to thousands of clothing workshops, many of which supply to Shein and other e-commerce platforms.ST PHOTO: JOYCE ZK LIM
Garment factories have varying degrees of autonomy when selling on e-commerce platforms. Some simply produce goods for the platforms with no input into sales and pricing, as is typically the case for smaller players working with Shein. Others have their own stores on online marketplaces. Some also fulfil export orders through their own channels.
A factory owner, Ms Hu (not her real name), told ST that the eventual de minimis repeal and tariffs would “definitely” affect her business.
The Shein supplier, who also sells on Temu and takes export orders, said half of her company’s annual sales are to the US.
Although worried about the impact of the US’ policy change, she said there was little that she could do about it. “In times like these, small businesses will just go with the flow, and wait and see.”
Another factory owner, who gave his name only as Mr Yan, said 95 per cent of his goods were bound for the US, and the de minimis exemption repeal – alongside Mr Trump’s tariffs – would cause a “slight loss in profits” which he declined to quantify.
The Shein supplier, whose factory employs some 100 workers, also operates on other e-commerce platforms such as Amazon. Since selling on Amazon entails maintaining inventory in US warehouses, these sales will be unaffected by the de minimis rule change.
Mr Yan added that Mr Trump’s trade manoeuvres would have just a “short-term effect” while sellers find ways to adjust and work around them, such as by sending goods to the US via third countries. “The US can’t possibly cut itself off from the outside world… There must be some countries to which it is open.”
Another small factory owner, Mr Li, who supplies to Shein, said that he “did not need to be worried”.
“Everybody needs to wear clothes, isn’t it?” he asked rhetorically, while cutting a bolt of beige fabric into sheets.
The US’ moves, in his view, would do “nothing more than increase costs for American consumers”, he said bluntly.
Mr Joe Zhang, a Shenzhen-based e-commerce consultant who works with companies that currently use the de minimis provision, assessed that its repeal would prod businesses to move supply chains out of China, to places such as South-east Asia.
This would be less about the tariffs themselves, but the ability to send goods directly to US customers through an expedited clearance channel, which would erode the advantage that many Chinese e-commerce vendors have as they quickly churn out a wide variety of products in response to new trends and shopper preferences.
But for small factory owners in the “Shein village”, moving is not an option – for a variety of reasons beyond just the cost factor.
“Small businesses like us don’t have the funds to move,” said Ms Hu, adding that her annual revenue was about 10 million yuan (S$1.84 million).
She described factory relocation as a job for “big guns” that rake in hundreds of millions of yuan each year, and would be harder hit by the US’ moves.
All three producers also highlighted that China’s strong garment-making supply chain, which they said is unrivalled and cannot be quickly reproduced by South-east Asia, would continue giving them the competitive edge.
Ms Hu said she can source everything she needs for any given clothing design in the vicinity of her factory. Zhongda Fabric Market – one of the world’s largest textile wholesale markets – has all sorts of cloth and trimmings, and she can procure buttons, dyes, embroidery and laser-printing from any number of shops in the neighbourhood.
“This is what is called a supply chain, and it is very difficult to mature in a short time,” she said.
Concurring, Mr Yan said that this supply chain enables his factory to turn around new designs the very same day.
The 20-year veteran of the garment industry said he knew of factory owners who had tried moving their workshops to countries like Vietnam, Myanmar, Cambodia and Indonesia as early as five or six years ago.
About two-thirds of them were unsuccessful and subsequently returned to China, he said.
While South-east Asia might be suitable for producing garments which have longer shelf lives and production times, it lacks a complete supply chain, he said. This makes it difficult to produce fast fashion, which requires quick turnarounds.
Three small factory owners highlighted that China’s strong garment-making supply chain would continue giving them the competitive edge.ST PHOTO: JOYCE ZK LIM
With the impact of the de minimis exemption repeal and its cascading costs still unfolding, factory owners in Panyu remain circumspect, saying they are prepared to take things as they come.
“If we really can’t continue down this path,” said Ms Hu, “then we just won’t.”
Mr Yan said that if the de minimis exemption is revoked, he would simply ship his products to the US and pay duties, instead of going by air.
“We’ll tough it out,” he said, while adding that he believes that the US trade curbs would not get too out of hand.
“In itself, (free trade) is mutually beneficial,” he said. “When buying things becomes more expensive, (the US) itself will also panic.”
- Joyce Z.K. Lim is The Straits Times’ China correspondent, based in Shenzhen.
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