Shenzhen, China -April 12: A woman checks her smartphone, while on April 12, 2025 in Shenzhen, China, she will come to a busy intersection in front of a Sam's club membership business and a McDonald's restaurant.
Cheng Xin | Getty Images News
Since sky-high tariffs kill US orders for Chinese goods, the country tried to direct exporters to the domestic market-a step that threatens the second largest economy in the world into a deeper deflation.
Local Chinese governments and large companies have expressed support to help exporters at tariff to transfer their products to the domestic market for sale. Jd.comPresent Tencent And Douyin, Tikok's sister app in China, are among the e-commerce giants who promote the sale of these goods to Chinese consumers.
Sheng Qiuping, Vice Commerce Minister, described the huge domestic market of China in the past month as a decisive buffer for exporters when weathering external shocks and asked the local authorities to increase efforts to stabilize exports and consumption.
“The side effect is a wild price war among Chinese companies,” said Yingke Zhou, Senior China Economist at Barclays Bank.
Jd.com, for example, has promised 200 billion yuan (28 billion US dollars) to help exporters and set up a special section on its platform for goods that were originally intended for US buyers with discounts of up to 55%.
A reduced influx of reduced goods for the US market would also undermine the profitability of the companies, which in turn would weigh up employment, said Zhou. Uncertain job prospects and worries about income stability have already contributed to the weak demand from consumers.
After the consumer price index hovered just over zero in 2023 and 2024, it rose to a negative area and fell two months in a row in February and March. In March 29 in a row, the producer price index fell by 2.5% compared to the previous year in order to reach its steepest decline for four months.
According to an economist at Morgan Stanley, the trade war will deepen export orders from 2.5% in April to 2.8% in April in April. “We believe that the collective bargaining effects will be acute in this quarter because many exporters have stopped their production and programs to the USA.”
For the whole year, Shan Hui, chief China economist at Goldman Sachs, expects from 0.2% to 0% to 0% compared to the previous year in 2024, and the PPI will decrease by 1.6% in the previous year.
“The prices have to fall for domestic and other foreign buyers to absorb the excess offer left behind by US importers,” said Shan, adding that the production capacity may not quickly increase to “sudden tariffs” and that the overcapacity problems in some industries are likely to deteriorate.
Goldman projects China's real gross domestic product this year only by 4.0%, even if the Chinese authorities have set the growth target for 2025 to “around 5%”.
Survival game
This year US President Donald Trump has set tariffs for imported Chinese goods to 145%, the highest level of the century, which prompted Beijing to take revenge with additional taxes of 125%. Customs customs at such an unaffordable level have strongly achieved the trade between the two countries.
The concerted efforts of Beijing, exporters in the utilization of goods affected by US tariffs, may be nothing more than a stop gap measure, said Shen Meng, director of the Beijing Boutique Investment Bank Chanson & Co.
Access to access to the US market has deepened the tribes of the Chinese exporters, has a weak domestic demand and intensified price wars, razor-thin margins, payment delays and high returns.
“For exporters who were able to raise higher prices from American consumers, the sale on the domestic market in China is only a way to delete the inventory that has not been sold and to facilitate the short-term cash flow printing,” said Shen: “There is little space for profits.”
The pressed margins can force some export companies to close the store, while others could decide to work with loss, just so as not to sit in idle, said Shen.
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If more and more companies are closing or resolving the company, the failure will incorporate into the labor market. Shan von Goldman Sachs estimates that 16 million jobs, over 2% of the employment population of China, are involved in the production of US-bound goods.
The Trump administration last week ended the “de Minimis” recordings, which enabled Chinese e-commerce companies such as Shein and Temu to send with low values to the USA without paying tariffs.
“The removal of the de Minimis rule and the declining cash flow pushes many small and medium-sized companies in the direction of bankruptcy,” said Wang Dan, director of the political risk-specific consultation company Eurasia Group, and warned that work losses are increasing in export mining regions.
She estimates the urban unemployment rate to achieve an average of 5.7% above the official goal of 5.5% this year.
Beijing holds the firepower of the stimulus
In the past few years, increasing exports have contributed to compensating for the resistance of a real estate break -in, which has made the investments and consumer expenses, tense government finances and the banking sector.
The real estate sector disease company in connection with the unaffordable US tariffs means that “the economy should also be exposed to two important drags,” said Ting LU, chief economist China near Nomura, in a recent warning that the risk is a “poorer than expected demand shock”.
Despite the increasing demands for more robust stimuli, many economists believe that Beijing will probably be waiting to see concrete signs of economic deterioration before exerting fiscal firepower.
“Instead, the authorities do not see the deflation as a crisis, [they are] Low prices as a buffer to support household finances during a time of the economic transition, ”said Wang from Eurasia Group.
When asked about the potential effects of increased competition on the Chinese market, said professor at the University of Beijing, Justin Yifu Lin, said that Beijing could use fiscal, monetary and other targeted guidelines to increase purchasing power.
“The United States' challenge is greater than China,” he told Mandarin on April 21st to reporters, translated by CNBC. Lin is a dean of the Institute for New Structural Economics.
He assumes that the current tariff situation will soon be solved, but has no certain time frame. While China keeps the production capacities, Lin said that the United States would take at least one or two years to do the production of re -enlargement, which means that American consumers would in the meantime affect higher prices.
– Evelyn Cheng from CNBC contributed to this story.
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