China’s factories slash shifts and wages as US tariffs squeeze export margins

Chinese manufacturers are cutting shifts, reducing overtime pay, and relying more on temporary workers to stay afloat as US tariffs bite into profits, according to a Reuters report from Guangzhou. The strain is particularly visible in export hubs like Guangdong, where competition for non-US markets is intensifying. Mike Chai, who runs Cartia Global Manufacturing, a kitchen cabinet producer in Foshan, told Reuters he is aiming to cut wage costs by about 30% to keep up with Chinese rivals who have abandoned the US market due to steep tariffs. These competitors are now targeting his Australian customers, forcing him to shorten shifts and ask employees to take unpaid leave.

Chai has already halved his workforce since the pandemic and says his factory is now operating at only half capacity. “We’re in survival mode,” he said. “You don’t want our factory to go broke… let’s do it together.”

Tariff truce offers temporary relief

The pressure comes even as Washington and Beijing extended a 90-day tariff truce this week, preventing duties from returning to April’s triple-digit levels. However, Reuters notes that while China’s official unemployment rate remains around 5%, underemployment is worsening, a trend economists say is eroding worker incomes, confidence, and spending power.

Natixis Asia-Pacific chief economist Alicia Garcia-Herrero told Reuters that the export model is punishing workers rather than companies. “If you need to export at a loss, do not export,” she said, warning of a “spiral” of lower prices, lower wages, and weaker consumption.

July data shows Chinese exports to the US dropped 21.7% year-on-year, while shipments rose to the EU (+9.2%), ASEAN (+16.6%), and Australia (+14.8%). But winning these markets means cutting prices further, Chai plans a 10% reduction and reducing overtime, which once made up more than a third of workers’ pay.

Rise of temporary and lower-paid work

Reuters reports that many factories are replacing full-time staff with temporary hires to avoid pension and insurance costs. Some workers, like Alan Zhang in Guangzhou, now earn less than half their 2021 daily rate and struggle to find more than two weeks of work per month.

Pay rates for temp jobs have also fallen, from 16 yuan an hour last year to 14 yuan in some regions, while job seekers crowd factory recruitment markets in cities like Wuhan and Shenzhen. For some, conditions are so strained that they turn down work that falls short of advertised wages or requires upfront fees.

Economists warn that if manufacturing wages continue to be squeezed, deflationary pressure could spread across China’s wider economy, particularly in lower-skill industries such as textiles, furniture, and simple electronics.

(With inputs from the agencies)