High tariffs from the United States on imports of goods from China are a factor that will definitely significantly reduce or, quite likely, bring US orders for products from an Asian country to zero, against which Beijing, as part of its desire to help local exporters, is making efforts to divert sales to the domestic market, but this concept of action may provoke an increase in deflation in the future.
Local Chinese governments and major businesses expressed support for efforts aimed at redirecting products for subsequent sale on the homegrown market to help exporters cope with the consequences of harsh measures provided for by the current configuration of Washington’s trade policy. JD.com, Tencent, and Douyin, TikTok’s sister app in the Asian country, are among the e-commerce giants that promote sales of the mentioned goods to consumers in China.
Sheng Qiuping, China’s vice commerce minister, in a statement released last month, described the vast Asian country’s market as a crucial buffer for exporters in weathering external shocks. He also called on the local authorities to coordinate efforts to stabilize exports and increase consumption.
Yingke Zhou, a senior China economist at Barclays Bank, said that a side effect of the mentioned actions is a ferocious price war between Chinese companies.
In the context of the specified statement, it is worth noting that JD.com has pledged 200 billion yuan ($28 billion) to help exporters and has set up on its platform a dedicated section for goods that were originally intended for buyers from the United States. The mentioned products are offered to Chinese consumers with discounts of up to 55%.
Yingke Zhou argues that the influx of discounted goods, originally intended for the United States market, will be a factor that will erode the profitability of companies from the Asian country. The expert also noted that the implementation of this forecast will mean the formation of a source of negative impact on the employment rate in China.
It is worth noting that recently the Asian country’s economy, which is the second-largest in the world, has been facing sluggish domestic consumer demand. This factor already weighs on the dynamic of the Chinese gross domestic product (GDP). It is worth noting that this case does not imply some kind of critical impact provoking a crisis situation as an established reality. In the relevant context, it would be appropriate to draw attention to the fact that in the first quarter of the current year, the Asian country’s economy showed growth of 5.4% compared to the same period in 2024 and exceeded preliminary expectations. Rather, weak domestic consumer demand can be described as a factor, a more favorable condition of which could strengthen the momentum of China’s GDP increase. This would be good support for the Asian country’s economy at a time of significant external challenges, the main of which are the gradually emerging trade war with the United States and general geopolitical tensions that have reached a high level and are approaching the verge of a kind of critical degradation of international cooperation, including in the financial and industrial context.
It is also worth noting that Beijing set up a GDP growth target for 2025 at about a 5% level. The figure for the first quarter exceeded these optimistic expectations of the Asian country’s authorities.
Weak consumer demand, as a fact existing in the space of China’s objective economic reality, is largely related to uncertainty about job prospects and concerns regarding income stability.
In 2023 and last year, the consumer price index in the Asian country showed fluctuations just above zero. In 2025, the corresponding indicator entered into negative territory. In February and March of the current year in the Asian country, the consumer price index showed a decrease. The producer price index fell last month in China. In this case, a notable circumstance is that the mentioned indicator has been on a downward trajectory for the 29th month in a row. In March, the Asian country’s producer price index fell 2.5% compared to the reading for the same period in 2024. It is worth noting that this is the sharpest decline in four months.
A team of economists at Morgan Stanley notes that as the trade war knocks down export orders, China’s wholesale price deflation is likely to rise to 2.8% in April from 2.5% in March. In their opinion, the most acute impact of tariffs will be recorded in the second quarter of 2025. In this context, it was separately noted that many exporters have already halted their production and shipments to the United States.
At the same time, China’s dependence on the US in the context of export activities should not be exaggerated. Of course, Washington continues to be one of Beijing’s most important trading partners, but this status quo, which for a long time was perceived by many as something like the natural order of things, has changed. According to Statista, until 2018, the share of the United States in the Asian country’s export shipments was more than 19%. In the mentioned year, Beijing began a gradual diversification of its foreign trade activities. This was on account of the fact that Donald Trump, who returned to the White House in January 2025, declared a de facto trade war on China during his first term as president of the United States, which lasted from 2017 to 2021. Beijing’s efforts to diversify its foreign trade activities have generated positive results for the Asian country. According to Statista estimates, the share of the United States in the structure of Chinese exports in 2024 was approximately 14.7%. This figure is the lowest in the last decade. At the same time, the mentioned downward trajectory does not negate the morbid sensitivity of Washington’s tariffs against Beijing, which were imposed in the current year. The measures of the present version of the United States trade policy provide for 145% levies on products imported from China. As part of the response, the Asian country imposed 125% tariffs on goods shipped from the US. It is worth noting that this levies confrontation also contains risks for the economic system of the United States, the main one of which is the potential acceleration of the growth of overall inflation.
Shan Hui, chief China economist at Goldman Sachs, expects the consumer price index for 2025 in the Asian country to fall to 0% year-on-year. It is worth mentioning that last year this indicator was recorded at the 0.2% mark. The producer price index, according to the expert’s forecast, will decrease by 1.6% in China in 2025. In 2024, the drop in this indicator was 2.2%.
Shan Hui also stated that prices will need to fall for domestic and other foreign buyers to help absorb the excess supply left behind by US importers. Moreover, the expert noted that manufacturing capacity may not adjust quickly to sudden tariff increases. According to Shan Hui, this is likely to exacerbate the overcapacity issues in some industries.
Goldman Sachs predicts that China’s real GDP will grow by 4% in the current year. This indicator is significantly lower than the target of the Asian country’s authorities.
Shen Meng, director at Beijing-based boutique investment bank Chanson & Co., said the concerted China’s efforts to help exporters in offloading goods impacted by tariffs from the United States may be nothing more than a stopgap measure.
The loss of access to the US market has exacerbated the burden on exporters based in the Asian country. This circumstance has also become a source of deterioration of already negative factors, such as weak domestic demand, price wars, razor-thin margins, payment delays, and high return rates.
Shen Meng stated that for exporters that were able to charge higher prices from American consumers, sales in China’s domestic market are a merely way to clear unsold inventory and ease short-term cash-flow pressure. According to the expert, there is little room for profits.
Shen Meng also suggested that the squeezed margins may force some exporting companies to close shop, while others may opt to operate at a loss, just to keep factories from sitting idle.
In China, the number of firms that shut down or scale back their activities is increasing. The consequences of this process will inevitably affect the situation in the Asian country’s labor market.
Shan Hui claims that 16 million jobs in China, equivalent to more than 2% of the total local workforce, are involved in the production of US-bound products.
It’s worth mentioning that last week, the Donald Trump administration ended the de minimis exemptions that allowed e-commerce brands from the Asian country, such as Shein and Temu, to ship low-value parcels into the United States without paying tariffs.
Wang Dan, China director at political risk consultancy firm Eurasia Group, said that the removal of the de minimis rules and declining cash flow are pushing many small and medium-sized enterprises towards insolvency. It was also noted that job losses are mounting in export-reliant regions. Moreover, Wang Dan expects the urban unemployment rate in China to reach an average of 5.7% this year. It is worth noting that in this case, the target of the Asian country’s authorities is 5.5%.
In recent years, one of the most large-scale and sensitive challenges for China has been the protracted downturn in the real estate sector. This state of affairs has become a factor of negative impact on investment and consumer spending, strained government finances, and the banking sector. The downturn in the real estate sector as a source of the formation of the economic situation in the Asian country in recent years has been offset by exports that were on a growth trajectory. At the same time, the trade war with Washington is narrowing Beijing’s ability to earn on external shipments of products.
Ting Lu, chief China economist at Nomura, said that the property-sector ills, coupled with the prohibitive US tariffs, mean the economy of the Asian country is set to face two major drags simultaneously. The expert also warned about the risk of a worse-than-expected demand shock.
Currently, the opinion is actively circulating among analysts, according to which Beijing should apply more sweeping and effective measures to stimulate economic growth. At the same time, the Chinese authorities are still in no hurry to implement such efforts. Some experts quoted by the media suggest that Beijing will probably wait until specific and unambiguous signs of deterioration of the situation in the economic system are recorded, and only after that will it decide to use fiscal firepower.
Wang Dan argues that the Chinese authorities do not view deflation as a crisis, and instead, they are framing low prices as a buffer to support household savings during a period of economic transition.
Responding to a question from media representatives about the potential impact of increased competition within the Asian country’s market, Peking University professor Justin Yifu Lin said Beijing could use fiscal, monetary, and other targeted policies to boost purchasing power. According to the expert, the challenge facing the United States is larger than China’s. Justin Yifu Lin is dean of the Institute of New Structural Economics. The expert expects that the current tariff situation will be resolved soon. At the same time, no dates were specified in this case. Justin Yifu Lin said that while China retains production capabilities, the United States will need at least a year or two to reshore manufacturing, which means that American consumers would be hit by price increases in the interim.
It is worth noting that recently the discussion of the possible conclusion of a trade deal between Beijing and Washington has been increasingly circulating in the information space. Both China and the United States are interested in resolving the conditions and circumstances of economic cooperation. In this case, the unequivocal pragmatic interest of both sides of the tariff confrontation is implied. At the same time, so far neither Beijing nor Washington has made any concrete moves towards concluding a trade deal. It is possible that the deterioration of the economic situation in China and the United States will be the most effective argument in favor of starting a negotiation process between the world’s largest economies. At the same time, this is just an assumption against the background of the actual lack of progress towards concluding a trade deal.
As we have reported earlier, China Says About Prospects of Trade Talks With US.
