Industry veterans say they are urgently pressing ahead with plans to diversify production locations to mitigate geopolitical risks

The 90-day pause on Sino-US tariffs has caused “daily challenges” for Hong Kong manufacturers, industry veterans have said, revealing they have been receiving unlawful demands from American importers seeking to circumvent levies.

Several told the Post that Beijing and Washington’s suspension of tariffs for 90 days from May 14 had given Hong Kong exporters some respite, but they were urgently pressing ahead with plans to diversify their production bases to mitigate geopolitical risks.

The manufacturers said they were not letting their guard down despite expectations that Chinese President Xi Jinping and his United States counterpart, Donald Trump, would meet to discuss solutions.

“I expect tariffs will come down slightly to 15 to 20 per cent, but it is still very difficult to do business with the US,” said Karen Ng Pui-lam, director of luxurious underwear maker L&A Lingerie. “No matter what, I am proactively looking for a production alternative in Vietnam and Thailand.”

Earlier in the month, the pause in the trade war saw the US agree to lower tariffs on Chinese exports from 145 per cent to 30 per cent, while China rolled back duties on American goods from 125 per cent to 10 per cent.

Ng said the tariffs for made-in-China garments and apparel stood at 37.5 per cent during the 90-day pause.

Karen Ng, director of L&A Lingerie, has said her team feels exhausted over handling the numerous demands from American clients since the US imposed sweeping tariffs on Chinese exports. Photo: Handout
Karen Ng, director of L&A Lingerie, has said her team feels exhausted over handling the numerous demands from American clients since the US imposed sweeping tariffs on Chinese exports. Photo: Handout
The second-generation family business owner said the company was established in Tai Kok Tsui in 1982 and had started out with a workforce of 15 people sewing brassieres.

Since the relocation of the factory across the border in 1989, the business had gone on to rely on a factory in Guangdong province’s Huiyang and now comprised nearly 300 employees, she said.

Ng said the majority of the company’s products – bras, underpants and lounge wear – were exported to the US and the remainder went to Europe, but added her team felt exhausted over handling the numerous demands from American clients since Trump imposed his sweeping tariffs on Chinese exports.

“Some asked if we could ship products to Singapore, the Middle East and Canada, and then change the country of origin label from China to these countries before sending them to the US to avoid tariffs,” she said.

“Some asked us to ship products using small parcels … I told them we don’t do anything illegal.”

Rick Helfenbein, former chief of the Washington-based American Apparel & Footwear Association, a national business body representing 1,100 global brands, retailers and producers, said that while transshipments were legal, they could be deemed illegal if they were used to avoid paying tariffs.

“US customs is always on the lookout for suspicious routing or products,” he said.

Ng said that due to the nature of her goods – premium products that were small in volume but high in value – she had not considered relocating the company’s production base until the latest tariff war erupted in April.

She noted her products typically retailed at up to US$250 a piece in the US.

The business owner said she frequently travelled to Vietnam to find a manufacturing partner, with the country already having established facilities, adding that Thailand was another option.

She noted that both countries had a relatively established pool of skilled labour.

Bryant Chan Wan-sing, president of Hong Kong toymaker the Wynnewood Corporation, said the most unreasonable demands from US customers involved calls to share the costs arising from the current 30 per cent tariffs.

“They asked us to share the cost of tariffs,” he said. “We have no room to share the cost, 30 per cent – frankly speaking, I don’t even make that much.”

Chan said the company had been producing toys in Guangdong’s Heyuan, with the site employing about 1,000 workers. He noted that currently about 70 per cent of its toys and other consumer and industrial goods were sold to the US.

He said that the company’s contracts with American clients stipulated that any such costs for goods that had left mainland Chinese ports would be borne by importers.

The business was also facing urgent orders from US importers looking to take advantage of the 90-day pause, he said, adding production could take as little as 45 to 50 days.

Chan said the company would press ahead with setting up a new factory in Indonesia later this year and would expand to other markets, such as Europe and the Middle East.

He added the 145 per cent tariffs could lead to a 30 to 40 per cent decline in the company’s sales target this year, but being able to ship again during the pause would help alleviate the impact.

Joan Collar, chief commercial officer at Marsh McLennan Asia, a professional services company specialising in risk, strategy and people, said diversification was once again key to survival for businesses.

“Seeking alternative markets, understanding the supply chain exposures and protecting against them with the right level of insurance tools, and finally, supporting the talent labour will be key in Greater China, and certainly Hong Kong, to ride through the tariff wave,” she said.

Source: South China Morning Post 

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