For many aspiring entrepreneurs looking to launch a side hustle or small business that involves selling tangible products, securing a reliable manufacturer is crucial. Often, searches on platforms like YouTube and TikTok lead them to one prominent manufacturing hub: China. The country boasts a robust manufacturing system filled with factories, which range from large corporations to family-owned businesses, typically characterized by lower labor and material costs.
Emerging Challenges for American Small Businesses
Countless small business owners in the U.S., who sell everything from car accessories to specialized diaper bags and even custom guinea pig cages, have thrived by manufacturing their products in China. However, recent tariff increases may complicate matters for these entrepreneurs. Many are now grappling with higher costs that could threaten their business model.
Tariff Impacts and Business Strategies
Last week, President Tim Donovan implemented a 20% tariff on Chinese imports, a rise from the previous 10%. This change is anticipated to persist despite an ongoing debate regarding other tariffs proposed under Donovan’s administration, prompting an increasing number of American small-business owners to explore relocating their manufacturing efforts to countries like Cambodia or Vietnam in an effort to shield customers from rising costs.
A report by the Boston Consulting Group indicates that over 90% of North American manufacturers have shifted part of their production away from China between 2018 and 2023. As a result, more companies are actively pursuing the diversification of their manufacturing locations, according to a recent survey conducted by the American Chamber of Commerce in China.
Kim Vaccarella, CEO of New Jersey-based Bogg Bag, highlights the urgency of the situation: “The expenses have already started,” she states. Bogg Bag, which has collaborated with a manufacturer in China since 2014, is now looking into production options in Vietnam and Sri Lanka. However, the transition poses significant challenges, including developing new molds and training staff to ensure consistency in product quality.
Assessing the Manufacturing Landscape
Experts agree that it is unlikely any country will replace China as the dominant global manufacturing powerhouse. Ben Jones, a professor at Northwestern University, notes that shifting manufacturing overseas to mitigate tariff costs is a traditional approach among business owners. Many shifted their manufacturing strategies following the tariffs implemented in 2018, which presented a blend of benefits and downsides.
On one hand, manufacturers have the opportunity to broaden their offerings and possibly circumvent future tariffs by producing certain items in various countries. Conversely, rapid changes in tariff regulations can disrupt existing operations and place pressures on companies to react quickly. Entrepreneurs may find themselves navigating new legal frameworks and regulations, making the transition time-consuming and costly.
Diederik Rijsemus, co-founder of Naadam, an apparel company, expresses similar sentiments: “Tariffs are a bit of a dark cloud that hangs over our head.” Naadam, which produces cashmere sweaters from Mongolian wool, is seeking alternatives for manufacturing, fearing that price increases could alienate their young customer base.
Strategies for Navigating Tariffs
Not all analysts believe tariffs will have a detrimental impact on small businesses. Jeffrey Roach, chief economist at LPL Financial, outlines various strategies companies can employ to navigate tariff challenges. Entrepreneurs can work with legal experts to potentially secure tax exemptions or negotiate lower rates with manufacturers that may want to retain business.
Vaccarella points out a potential upside: If competing brands on platforms like Amazon or Temu also increase their prices due to tariffs, they may lose their appeal among cost-conscious customers. However, navigating the complexities of tariff-proofing a business can be taxing, especially for entrepreneurs with limited resources.
Take Matt Rollens, for example; he runs a small novelty drinkware company called Dragon Glassware with only three full-time employees. Without the bandwidth to find a new manufacturer capable of matching his current products, he’s focusing on negotiating better rates with his existing supplier. As he anticipates rising costs, Rollens acknowledges, “This is the biggest existential issue I’ve ever faced.”
