DONGGUAN, China (AP) -- Massive aluminum sheets hang in Danny Lau's factory as workers bustled about painting them with oil coating in China's southern industrial city of Dongguan.

The Hong Kong businessman set up this factory in mainland China in the 1990s, taking advantage of lower manufacturing costs. While the factory has soldiered through past economic turmoil, Lau said the escalating trade war has proved to be "most difficult."

"We didn't expect that our orders would suffer so heavily," Lau said.

During U.S. President Donald Trump's first term, the factory was hit with a 25% tariff. After Trump returned to the White House this year, tariffs escalated further, with the U.S. imposing sweeping 145% tariffs and China raising its tariffs to 125%. For Lau's aluminum-coating factory, he said it amounted to a 75% tariff on his products.

One third of clients for Lau's Kam Pin Industrial are from the U.S. One U.S. client said they would keep buying materials from Lau for an ongoing project because they couldn't find another supplier, but they will need to reconsider whether to source from him for the next project. A few clients told him the chances of continuing business with him are slim. "Prospects are grim," he said.

Since late 2024, Lau's company has started exploring opportunities in new markets, anticipating Trump's increasing tariffs. Recently, he visited a few Middle Eastern countries. While other Chinese exporters have begun diversifying their markets since Trump's first term, Lau found the U.S. market difficult to replace.

"The U.S. market has big advantages -- it has the ability to pay, and they have demand for high quality and punctual delivery," Lau said. "Without that market, it would be difficult for us."

One virtual reality equipment and game company has succeeded in finding demand in Southeast Asia, Latin America and the Middle East.

"The living standard, views on consumption and the cultural feelings of these countries are close to those of China," said Zou Huajian, in charge of export business in Zhuoyuan VR Tech.

Zou said his company has diverted resources to developing economies after the COVID-19 pandemic dealt a blow. The U.S. now accounts for less than 10% of the company's business, Zou said, because people are less willing to spend on entertainment.

Half of the company's orders now come from countries outside China, in particular from Asia-Pacific countries, with India one of their biggest export markets.

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Associated Press video producer Olivia Zhang in Dongguan and AP writer Kanis Leung in Hong Kong contributed to this report.

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