Exclusive | Guangdong exporters caught in the tariff whirlpool

Questioning AI · What hidden costs and efficiency traps are there in building factories in Vietnam?

Amid the U.S. “reciprocal tariffs,” Guangdong earphone exporter Mr. Ming saw his North American orders plunge by 90% at one point. To survive, he went all the way to Vietnam to set up a factory, but he ran into a host of difficulties—an incomplete supply chain, high rent and labor costs, low efficiency, and more. Later, the U.S. tariff rate on Vietnam overtook that on China, pushing the Vietnamese factory into a semi-shutdown. He admits feeling exhausted, and what he can do right now is to wait and carry on with hard work.

The day the reporter reached Mr. Ming by phone, exactly one year had passed since U.S. President Trump announced the “reciprocal tariffs” (April 2, 2025).

As the person in charge of a foreign-trade company whose main market is the United States, over the past year Mr. Ming has experienced the massive impact of Trump’s tariff policy on his business, and also witnessed the difficult process of his company’s decision to invest in Vietnam and set up a factory to survive.

Mr. Ming’s company is currently a national-level high-tech enterprise and a Shenzhen “specialized, refined, distinctive, and innovative” enterprise. For years, it has consistently done contract manufacturing for internationally well-known earphone brands. Backed by Guangdong, a major manufacturing province, Mr. Ming’s factory and company have developed rapidly in recent years. But last year, when Trump proposed the “reciprocal tariffs,” Mr. Ming’s orders instantly “evaporated.” With that determination summed up by the idea that “where there’s a will, there’s a way,” Mr. Ming decided to speed up the relocation of parts of the industrial chain and build a factory in Vietnam. However, just after the factory was finally built, the U.S. tariff on Vietnam once again surpassed China’s.

Mr. Ming candidly said that, facing a constantly shifting tariff environment, he and some peers indeed “feel a bit worn out.” What they can do right now is to wait and act—put in the work with execution.

Below is his account of the difficult journey of setting up a factory abroad:

Building a Factory in Vietnam

I clearly remember many details from that day. In the early morning of April 2 last year—around six or seven o’clock—I saw the news that tariff expectations would take effect on April 8.

Then everything took a sudden turn. Before that, the tariff rate on earphones was only 5%. After the announcement, the tariff on earphone exports to the U.S. rose to 34%. For U.S. customers, the gross profit margin on earphones might not even be that high. Since the U.S. market accounts for 75% of our company’s share, from the start of the “reciprocal tariffs” through the end of last October, our entire North American order volume fell by 90%. In other words, the tariffs were a huge blow to us.

Since we couldn’t change the environment, we could only change ourselves. So I began looking for other paths and accelerating the transfer of production. Actually, at that stage the goal of setting up a factory overseas was very clear—it was to solve the tariff problem. But looking back now, the process of building a factory in Vietnam was not as smooth as I had imagined.

First, Vietnam still has a certain gap compared with China. In the supply chain, it doesn’t have the same advantages as Shenzhen. In Shenzhen, we can reach all raw materials within a radius of 10 kilometers. But in Vietnam, many components simply can’t find suppliers for.

Moreover, these years Vietnam’s land acquisition costs and rental prices have become incomparable with the past. In some places, rent is even more than double that in China—over 5 dollars per square meter. Lease terms start at one year, and the secondary fire-safety cost for renovations is around 400 yuan per square meter. In China, 400 yuan per square meter is already enough to build factory buildings. In short, the renovation and fire-safety costs are ridiculously high. If you don’t hire local people to handle it, the inspection and approval may not pass; if you do hire locals, first the efficiency is slow, and second the cost is high.

This is only the early-stage work. From my own experience, there are many restrictions when bringing production into Vietnam. For example, when company owners buy land in Vietnam to build factory buildings, the authorities do not actually allow them to build dormitories. In the factory, they also can’t cook or use stoves to prepare food—you have to leave the canteen work to local staff. Many restrictions are hidden in these seemingly small, unremarkable matters.

In addition, geographically speaking, Vietnam is still tied to China and neighbors in close relation. There are many companies in Guangdong—especially electronics firms—that set up factories around Hanoi. When these companies cluster together and move there in large numbers, prices and costs rise instantly, and hiring becomes relatively tight. I feel that Vietnam’s labor costs are higher than China’s. If you can’t hire enough workers, you have to look for labor dispatch services, where the hourly wages provided by labor dispatch companies are around 20 yuan.

With labor costs high, rent high, infrastructure costs high, operating costs high, and all kinds of miscellaneous expenses also high, the local workforce tends to work relatively more slowly in terms of efficiency, which has a certain impact on production.

Even so, after several rounds of consideration, we still hurriedly set up the factory in Vietnam. It took us seven or eight months to finish things like fire-safety approvals and business licenses.

A Two-Stage Reversal

After the factory was almost completed, things reversed again.

From October 25 to 26 last year, the economic and trade teams of China and the U.S. held China-U.S. economic and trade consultations in Kuala Lumpur, Malaysia. Not long after that, Trump signed an executive order deciding to pause the U.S. “reciprocal tariffs” on China for one year. At that time, in our industry the tariffs dropped to 27.5%, while Vietnam’s relevant tariffs were 20%. Even though China’s tariff cost was still higher than Vietnam’s, the cost of overseas production was higher than domestic production. After our assessment, we found that the costs of producing overseas and producing domestically were almost the same.

At that time, customers no longer brought up requirements about where the products should be produced. They just told us to handle it ourselves. Our production tasks almost returned to normal.

It wasn’t until the beginning of this year that Trump announced an additional 10% tariff on all countries (Note: On February 20, Trump signed an executive order imposing a 10% global tariff; on February 21 it was quickly raised to 15%), but tariffs on China were not increased. The current situation is that our industry’s effective tariffs are 27.5% for China and 30% for Vietnam. This has caused customers not to accept shipments from Vietnam. Our factory in Vietnam is currently in a semi-shutdown state; starting at the end of March, we are giving employees time off, and it may mean the factory will be stopped for several months.

Although tariffs have fallen now, compared with the initial level of 5%, they are still up by more than 20 percentage points. This has caused the retail price of our products in the U.S. to rise by at least 20%. The impact is biggest on our To B factory business; our To C own-brand has been affected a bit less, with performance down by about 10%.

If you ask a professional manager, he might tell you that overseas factory setup has policy incentives and promising prospects. But I’m the owner. Getting business licenses, dealing with fire-safety inspections, and interacting with the government are all things I do personally. In the process from 0 to 1, no one is more clear than me.

In Trump’s first term, the trade war targeted China’s tech giants, and the consumer electronics industry was basically unaffected. But now, the trade war can be said to be all-around, with high tariffs facing almost every field. For us, what we can do is to maximize the efficiency of domestic production in order to wait for the real turning point to arrive.

Reporter: Zhou Zimo

Text Editor: Wang Zhexi