Finance
Chinese factories halt, restart work to mitigate U.S. tariff disruption
YIWU, CHINA – NOVEMBER 26: Foreign clients select festive goods at China Yiwu International Trade City on November 26, 2024 in Yiwu, Zhejiang Province of China.
Hu Xiao/VCG via Getty Images
For years, Christmas merchandise has been hitting the U.S. shelves earlier, as retailers try to capitalize on the lucrative holiday season — a retail phenomenon known as “Christmas creep.”
However, tariffs could be the Grinch that disrupts year-end festivities, as Chinese factories and their U.S. buyers navigate tariff uncertainties to ensure that shelves stateside will be well-stocked in time for Christmas.
Shortly after U.S. President Donald Trump unveiled sweeping tariffs on April 2 — including a 34% tariff on imports from China that were later ramped up to 145% — many U.S. retailers’ reaction was to halt their orders from Chinese suppliers, forcing factories to pause production, according to CNBC interviews.
However, industry representatives say that some production has restarted in the last few days, as concerns about business disruptions and missed opportunities outweigh the tariff uncertainties.
“If you don’t start producing in the next couple of weeks, you’re going to start missing Black Friday and Christmas,” Cameron Johnson, Shanghai-based senior partner at consulting firm Tidalwave Solutions, said in a phone interview Tuesday.
“Both sides are trying to be flexible to some degree,” he said. “Retailers are starting to realize if these supply chains stop, it will be much more difficult to get them up and running [again].”
Johnson described how, for example, a pause in orders for a factory making spoons would impact the company that rolls the steel, as well as the iron ore smelter. “These supply chains themselves, the upstream, are also starting to close down. If they close down, even if we have some kind of a deal, it will take time for things to [restart].”
Despite some rerouting of China-made goods through other countries, replacing existing supply chains and shipping schedules will be difficult to achieve overnight. For 36% of U.S. imports from China, more than 70% can only be sourced from mainland suppliers, according to a Goldman Sachs analysis earlier in April.
For example, electronic products need to be shipped out of China by early September to hit U.S. shelves right after the Thanksgiving holiday at the end of November, taking into account customs clearance and the distribution chain, said Renaud Anjoran, CEO of Agilian Technology, an electronics manufacturer in China. The Guangdong-based company delivers half of its products to the U.S. market.
It takes around six months to manufacture, test, assemble, and package, meaning suppliers ideally should have started preparing for these orders in March, said Anjoran.
Shrinking shipments
Many U.S. buyers had started stockpiling inventories since late last year, anticipating higher tariffs after Trump returned to office. As frontloading continued, China’s exports to the U.S. rose by 9.1% in March from a year ago, according to CNBC’s calculation of official customs data, while imports from fell 9.5% on year. April trade figures are expected to be released on May 9.
But those frontloading efforts have started to dwindle. The number of cargo-carrying container ships departing from China to the U.S. has fallen sharply in recent weeks, according to Morgan Stanley’s tracking of high-frequency shipping indicators. Cancelled shipments have also skyrocketed by 14 times in the four weeks from April 14 to May 5, compared to the period from March 10 to April 7, the investment bank said.
In April, a gauge of new export orders from Chinese factories fell to the lowest level since late 2022, according to the national statistics bureau.
“Currently, we do not have a lot of purchase orders for the next few months from American customers,” Anjoran said. Most of his clients have stockpiled inventory that was shipped to the U.S. before Chinese New Year at the end of January, with some orders trickling in March and April.
Subscribe now
Some U.S. buyers are waiting to see whether tariffs will be reduced to a more acceptable level in May before resuming shipments, Ryan Zhao, a director at Jiangsu Green Willow Textile, told CNBC. For now, the company has production on hold for orders from its U.S. clients.
Recent reports pointed to some tariff reliefs on the ground as both governments sought to blunt the economic impacts of punitive tariffs. China reportedly granted tariff exemptions to certain U.S. goods, including pharmaceuticals, aerospace equipment, semiconductors, and ethane imports.
In the latest relief, Trump signed an executive order exempting foreign car and parts imports from additional levies, following an earlier rollback of tariffs on a range of electronic products, including smartphones, computers and chips.
Trying to time it right
Despite concerns about profit margins, some businesses are hedging their bets by partially refilling orders from China rather than enduring the sight of empty store shelves, said Tidalwave Solutions’ Johnson.
“A few factories told me some U.S. importers have instructed them to resume production in an attempt to ‘time’ anticipated tariff relief,” Martin Crowley, vice president of product development at Seattle-based wholesale toy seller Toysmith, said in an email Tuesday. The company’s website urges customers to place orders by May 16, for shipping by July 31, “to lock in current, non-tariffed pricing.”
In the last few days, many factories in the manufacturing centers of Yiwu, Shantou, and Dongguan have received clearance from Walmart and Target to resume production, Crowley added. Walmart and Target did not immediately respond to a CNBC request for comment.
Some Agilian customers are also placing relatively smaller orders, betting that tariff rates will decrease by the time their products arrive at U.S. ports.
However, in the event of a breakthrough in U.S.-China trade negotiations — and a rush to backfill orders ensues — that could drive up factories’ production costs and shipping prices.
“It is possible to rush, arrange production faster if quantities are not large … but if all American customers rush at the same time, the factories are going to be overwhelmed and air shipments will be quite expensive,” said Anjoran.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
Sign up for our weekly newsletter that goes beyond the livestream, offering a closer look at the trends and figures shaping the ETF market.
New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
What that means for consumer loans
Checks and Balance newsletter: Of God and MAGA
Why software stocks, 2026’s market dogs, have joined the rally
Armanino adds Strategic Accounting Outsourced Solutions
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
