This drama is intensified by the overall uncertainty about U.S. tariffs on imports. For these reasons, cargo-carrying container ships are departing China for the United States in sharply lower numbers. Morgan Stanley’s tracking of various high-frequency global shipping indicators shows that overall contains multitudes has picked up significantly over the last few weeks. Now facing a new crisis ahead of the holidays, retailers are concerned about the supply of Chinese-made products.
Since former President Donald Trump announced sweeping tariffs on April 2, which included an initial 34% tariff on imports from China—later increased to 145%—many U.S. retailers have responded by halting orders from Chinese suppliers. An order freeze has caused most orders factories across China to shut down their production. That disruption is sending a dramatic ripple effect across the entire supply chain.
Morgan Stanley’s data paints a shocking picture of that canceled shipment spike. They shot up an incredible 14 times from April 14 to May 5, over the previous month. Retailers are understandably becoming alarmed at the unintended consequences of tariffs on raising their inventory carry costs. That dramatic increase in cancellations is a testament to their rising alarm.
Additionally, new export orders from Chinese factories have plummeted. This decline represents the steepest drop since late 2022, according to the national statistics bureau. Retailers are beginning to hear alarm bells as they look ahead. If tomorrow’s supply chains were to suddenly stop, they might find it more difficult to start up again.
Earlier this year, Cameron Johnson of Tidalwave Solutions raised these impacts of late orders to his state’s apparel and fulfillment companies. “If you don’t start producing in the next couple of weeks, you’re going to start missing Black Friday and Christmas,” he stated.
The impacts of stopped orders go further than just retailers. Johnson described the impacts that a freeze in orders for the spoon factory would have. That wouldn’t just put the spoon factory out of business—it would have a devastating effect on the businesses supplying steel and on iron ore smelting plants.
Renaud Anjoran of Agilian Technology echoed the same sentiment, stating that his company has halted manufacturing. This stop is caused by a lack of purchase orders from U.S. customers. As a rule of thumb, he continued, product development, manufacturing testing, assembly, and packaging generally requires six months lead time. That’s because suppliers needed to be gearing up for these orders as early as March.
To counteract the negative effects of these tariffs China has retaliated. It has exempted certain U.S. industries or goods, including pharmaceuticals, aerospace equipment, semiconductors, and exempted ethane imports as well. Even with these exemptions, the U.S.-China trade relationship is still rife with tension.
Beginning late last year, U.S. buyers began to hoard inventories. They had expected even tougher tariffs to come after Trump’s return to the White House. In March, China’s exports to the U.S. surprisingly rose by 9.1% year-over-year, according to CNBC’s analysis of official customs data.
Goldman Sachs’ analysis indicates that 36% of all U.S. imports from China are imported solely from suppliers located on the U.S. mainland. This brings to the forefront America’s extreme reliance on Chinese manufacturing for critical products.
As Gene Seroka of the Port of Los Angeles shared last week, retailers only have five to seven weeks’ worth of full inventory on hand as it stands today. Beyond that, they can expect future shortages. It’s a pretty scary time. Retailers are scrambling to get their supply chains in order before the start of the holiday shopping season.
Martin Crowley from Toysmith noted that some factories have received instructions from U.S. importers to resume production in hopes of “timing” anticipated tariff relief. This approach has its pitfalls as supply chains start to snap even more.
Anjoran painted a realistic picture that when it comes to smaller orders, we can accelerate production. This huge demand from American customers will surely choke American factories, clogging the floor and forcing expensive air shipments for those fulfilling time-sensitive requirements.
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