Editor’s Note
This article highlights the personal toll of international trade policies, as seen through the experience of a Korean entrepreneur whose jewelry business in China faces significant challenges due to U.S. tariffs. It underscores how geopolitical decisions can directly impact individual livelihoods and cross-border commerce.
K CEO (50 years old), who completed the Trade Master Course at the Korea International Trade Association (KITA) Academy over 20 years ago, started a full-fledged business in China using the trade expertise he had learned as his foundation. He set up his base in Shandong Province, where many Korean companies are clustered, and fully entered the jewelry business.
He filled the lack of capital with boldness and developed his client base through diligence, so it didn’t require a huge initial investment. After enduring hardships, including living and eating at the factory, he once stood out by achieving over $5 million in exports, primarily to the United States. In the process, he established himself as an excellent supplier for famous jewelry brands in the US. While export volume didn’t increase dramatically, he maintained stable exports without major fluctuations. Recognized as a promising young entrepreneur in the local Korean community, he also took on the role of chairman for a local Korean entrepreneurs’ association with over 100 members. Following a local factory spanning over 4,000 pyeong (approx. 13,200 sqm), he aggressively invested a few years ago by setting up a second factory in Shenzhen and expanding his product line from jewelry to beauty-related items like brushes, drawing envy from those around him. Especially during Trump’s first term, the US economy wasn’t bad, and thanks to China’s superior price competitiveness, although margins were thin, there were no major difficulties in running the business.
However, since the beginning of this year when Trump took office for the second time, the situation has deteriorated rapidly. When the tariff rate was in the triple digits, he didn’t dare think about shipping. Fortunately, when it dropped to 24%, orders barely resumed. But the good news of resumed shipping came with another problem. The US importer asked, “We’re struggling too, can you lower the export unit price by 10%?” K CEO thought that since it was a long-standing client and the brand had high recognition in the US, the double-digit tariff rate wouldn’t be a major issue for the buyer. However, as the suggestion was repeated, it began to feel like coercion. He held out for a few weeks, joking that they should first address US labor costs, and that lowering the export price with no margin was nonsense, but ultimately he had no choice but to accept the 10% price cut proposal. A 10% reduction in export price means truly ‘zero margin.’ K CEO is reluctantly fulfilling orders just to keep the factory running, unable to move beyond that level. Particularly, with the US economy not doing well and the additional tariff burden on US buyers being significant, raising prices is out of the question, and now even maintaining order volume is difficult to expect.
He added that this situation is similar for many companies that have entered Shandong Province, and they are struggling to maintain business operations rather than make profits. Many are barely getting by by selling apartments or offices they had prepared locally to secure liquidity.
So, is there no other way out? US buyers suggested moving the factory to Southeast Asia, as the confrontation between the US and China is unlikely to end in a year or two. However, he concluded that this was a short-sighted measure considering only the buyer’s perspective. The reality is that jewelry and beauty-related products cannot be free from Chinese raw materials no matter where they are produced. While moving to Southeast Asia like Vietnam might lower labor costs slightly, it’s easy to envision a situation where there’s little change in tariff rates due to the use of Chinese raw materials, and logistics costs would increase. What about moving the factory to Korea or the US? K CEO, who had been contemplating, revealed that he considered building a new fully automated factory in Korea, but the plan was abandoned as it required at least 2 billion won in new investment. With the current export margins, even paying interest is burdensome. Moving to the US was also discussed with buyers as an option. The problem was high labor costs and difficulties in procuring raw materials, so that too had to be abandoned. At the Chinese factory, a Chinese manager’s salary is slightly over 10,000 yuan (relatively cheap as it’s on the outskirts of the city), while a Korean manager requires 30,000 yuan. Production workers cost 3,500 yuan, but moving to the US, they concluded they couldn’t find workers even at 2-3 times that cost.
Recently, the fortunate thing is that with China’s economy not doing well, the steep rise in labor costs has stopped. Salaries are similar across companies, but production workers don’t stay at the same factory for long. The scene where workers leave en masse for just 50 yuan more or slightly better food is still common. Recently, installing air conditioning in the factory cafeteria to improve the environment and retain workers was also a stopgap measure. He also considered shifting products to the Chinese domestic market. For domestic sales, long-term credit is essential. However, the already high barriers to loans (financing) for foreign companies in China have recently become even higher, making it impossible to attempt. Particularly, the deeply ingrained ‘guanxi’ (connections) in the distribution network are like an impregnable fortress to foreigners; he has been knocking on that door for a long time, but it still hasn’t opened.
