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Crisis or Opportunity?

China is a manufacturing powerhouse. Known as “the world’s factory,” China is the world’s largest manufacturer in terms of output. The country’s GDP reached $17.7 trillion in 2021, up $3 trillion from 2020. This year, China is targeting to grow another 5.5%.  

Outside of textiles, nearly every promotional product comes from China—or has components from the country. China’s speed, low labor rates and strong manufacturing capabilities have made it a global manufacturing hub and the go-to source in the promotional products industry. 

China is the world’s second-largest economy behind the United States and its most populous nation with 1.4 billion people. But the country is changing rapidly. So is the relationship between China and the U.S.—and China and the world.

Is the promotional products industry ready for what comes next?

Tumultuous Times

Doing business in one of the world’s most dynamic countries has become increasingly complicated. First came the China tariffs in 2018, leading the world’s two largest economies to engage in a bitter trade war. Some economists say the U.S.-China trade war could go on for years. 

The United States currently imposes a 25% tariff on approximately $250 billion of imports from China and a 7.5% tariff on approximately $112 billion worth of imports from China, according to the Tax Foundation. Chinese tariffs on American products are about 20%. Before the U.S.-China trade war, U.S. tariffs on Chinese goods were on average 3.1%, while China’s tariffs on American goods were about 8%.

While meant to punish China for its unfair economic policies, the tariffs that were started by the Trump Administration ended up harming the U.S. Multiple studies have shown that U.S. importers and consumers have primarily paid for the tariffs.

"We're paying the bill and it's hurting our earnings" - quoteBen Zhang, president and CEO of Greater Pacific, says his company builds the tariff into the prices he charges distributors. His distributor clients then do the same with their end-buyer clients. “Who eventually pays the price? Not China factories—American businesses,” Zhang says. “We’re paying the bill, and it’s hurting our earnings. We’re suffering.”

After the tariffs came COVID-19, causing economies to grind to a halt. Since the beginning of the pandemic in 2020, China has instituted a strict zero-Covid policy to crush outbreaks and chains of transmission. The central government enforces large-scale lockdowns, mass testing and international travel bans as part of its zero-Covid strategy. 

China’s strict approach over the past two years has created numerous bottlenecks in the global supply chain, with factory shutdowns and logistics closures. However, experts doubt the country will change its strategy. In March, China locked down tens of millions of people as it experienced its largest Covid outbreak in two years. With the world seemingly turning a corner on the pandemic following the Omicron variant’s global spike this winter, China’s shutdown affected 19 provinces, including Shenzhen, which is key to supply chains because of its ports.

In the wake of the debilitating trade war and pandemic came supply chain snarls that entangled the world. Every aspect of the global supply chain was upended, from the factories manufacturing items to the cargo ships to transport the goods to backlogs at ports to unload the shipments. 

Zhang says that while it used to take about a week to get freight once it arrives in the port, it may now take months. And once a shipment clears customs, there may not be a truck driver to transport the goods. This leads to a domino effect. Suppliers like Greater Pacific can’t bill distributors for undelivered freight. Distributors can’t bill their clients. And end buyers purchasing promotional products must wait several months—time they often don’t have—to get their goods in hand. 

Companies shipping products from China are shelling out substantially more than they did pre-pandemic. Zhang says that a typical 40-foot container from China used to cost $3,000-$4,000, but now costs anywhere from $18,000-$25,000. “It’s unbelievable, but we have to pay it. We have no choice,” he says.

Brennan Mulligan, founder and CEO of California-based Skyou, has never seen anything like it. “Everybody says it’s unprecedented, but it applies in this case,” he says. “Everyone was blindsided.”

Pivoting To Closer Shores

Anna PaczkowskaCrisis or Opportunity?