In Chinathere is an industrial park being built with the support of the Chinese state. There is an erotic clothing showroom, very popular, and small underwear factories that cooperate with large online platforms.

The underwear industry in the eastern province of Guanyun, also known as Victoria’s Secret Town and experiencing explosive growth, is now facing serious challenges mainly due to tariffs announced by Donald Trump.

The “de minimis” rules

Today the rule applies “de minimis’, that is, less customs paperwork, with the US exempting foreign packages valued at $800 or less from duty as long as they are sent to private individuals.

This, according to Reuters, has led to the rapid rise of Chinese e-commerce companies such as Shein and the Temuas well as producers who sell through these platforms. However, this tactic is also used for criminal purposes, such as the trafficking of fentanyl, which Trump has made a “flag”.

The efforts of the American president Joe Biden to “close the loophole” in his final days in office and President-elect Donald Trump’s campaign pledge to raise tariffs on China threaten returns of investments and livelihoods in Guanyun, home to about 1 million people and dependent on production and trade.

The European Union and other countries are considering similar restrictions. The new measures and higher tariffs “will have a relatively large impact on us”Lei Congrui, who has one, tells Reuters small factory sexy clothes and works with companies like Shein. 70% of its revenue is based on the US market.

Nomura, Japan’s largest investment bank and brokerage group, estimated that China will export $240 billion worth of goods benefiting from the “de minimis” rule this year, accounting for 7 percent of its overseas sales and contributing 1, 3% of gross domestic product.

It also provides that the abolition of the “de minimis” rule, from the US will reduce export growth by 1.3 percentage points and the GDP increase by 0.2 points. In fact, these numbers will worsen significantly if Europe and Southeast Asia also abolish this measure.

“We expect workers from these small, non-branded, low-value factories to be the most affected.”says Nomura’s chief China economist Ting Lu, adding that the apparel sector is among them.

China’s Ministry of Commerce reported last month that the “arbitrary» duties “they won’t solve America’s own problems” with drugs and the economy.

There are already signs that Victoria’s Secret Town, which began to open gradually from 2021, might not respond in the hopes of local authorities, which have invested 3 billion dollars.

Over-indebted local governments like Guanyun’s have often played a role in accelerating successful industries, albeit at the risk of a sharper future recession.

By November, most of this park was empty. Also, while the operation of other businesses has been announced, no opening date has been announced.

And other industrial zones across China are also facing issues of systemic overinvestment. The local governments “they only think as far as they can see”ignoring the national economy, said Majid Ghorbani, an associate professor at the China Europe International Business School in Shanghai.

Industrial model

Lei started his business as a high school student in 2006, with his relatives helping him with production, which took place in a shabby factory.

In 2014, he began to sells abroad to escape the price war in the Chinese market. A year later, Washington quadrupled the de minimis threshold from the original $200. The its exports were doubling every year since then. His total revenue last year was more than $1.3 million, he said.

Lei reports that many of his friends, relatives and neighbors have opened similar businesses. About 1,400 businesses, employing 100,000 people, currently produce erotic clothing in Guanyun.

The numbers he cited are comparable to those reported by Chinese state media. “If you go into any neighborhood around here and say ‘is there anyone making sexy lingerie?’ two heads will pop out of almost every building”Lei said.

Local authorities were initially wary due to Communist Party guidelines against “vulgar” products and content, but eventually embraced the industry and fed with state fundslike this industrial park.

Now, Lei says that the duties and the limitations in e-commerce they will force him to accept lower sales volumes and the Americans consumers they should pay more.

He is considering investing in US warehouses and switching to a bulk model instead of direct air shipments to customers, which could lower costs.

It is also looking for new customers in South America, the Middle East and Central Asia, and customers who can also be found on platforms such as Temu.