Before the imposition of tariffs by the United States, international buyers rushed to purchase Chinese products before the tariffs took effect, leading to a 6.9% increase in China’s export data in the first quarter of 2025 compared to the same period last year. In March, Chinese goods exports reached $306 billion, a year-on-year increase of 13.5%. However, the export data also exposed a major weakness in the Chinese economy, as the intensification of the trade war is expected to slow down China’s economic growth.
According to a report by The Washington Post, mainland Chinese exporters are looking to transition from operating in export markets to targeting the domestic market, but this transition is no easy task. One significant reason is that Americans spend more than Chinese consumers: household consumption accounts for nearly 70% of the GDP in the U.S., while in China it is less than 40%.
“We’re not familiar with the domestic market, so it’s a challenge,” said Wan, the owner of a clothing store in Nanchang. For the past 18 years in the clothing industry, Wan’s primary focus has been on foreign markets, with very little sales in China. Sixty percent of his orders come from the U.S., with only 10% from China.
Starting last week, Wan has begun posting videos on Chinese social media and listing his products on another online shopping platform.
In recent years, Beijing’s policies have largely favored investment in construction and manufacturing, encouraging investments in factories, railways, and skyscrapers. The direction of policies to promote consumption and drive economic growth remains somewhat reserved.
This is partly because such a shift could impact the annual 5% economic growth target and also because boosting domestic consumption requires giving Chinese people money and purchasing power, which could grant them some influence, something that authoritarian Beijing fears.
However, as the trade war intensifies, the Chinese government is forced to increase domestic demand for Chinese-manufactured goods. Jin Keyu, Associate Professor of Economics at the London School of Economics, said, “This indicates that China’s reliance on exports to drive growth is weakening, and the risks associated with export dependence are significant.”
The Chinese authorities have begun lowering interest rates and reserve requirements, subsidizing online shopping platforms, and incentivizing the replacement of household appliances and 3C products, yet these efforts to stimulate consumption have had minimal impact. Household spending has been particularly weak since the outbreak of the pandemic.
The Washington Post pointed out that even before this wave of tariffs, economists had expressed doubts about the feasibility of stimulating domestic demand, mainly due to the severe drag on economic growth from the continued downturn in the real estate market. In the first quarter of 2025, real estate investment in China fell by 10%, and sales of commercial residential properties dropped by 3%.
Wu Mingze, Deputy Researcher at the China Institute of Economic Research, pointed out that based on actual economic performance data, China’s various measures have only created ripples and have seemingly not had significant and long-term effects on revitalizing the overall domestic demand market.
Wu analyzed that the current economic difficulties and weak consumption in mainland China are mainly due to insufficient confidence in future economic growth, combined with the negative wealth effects and debt problems resulting from the collapse of the property and stock markets, causing the Beijing authorities to refrain from implementing large-scale fiscal stimulus policies and other factors.
The Washington Post analysis suggested that Beijing seems to hope that subsidy policies could quickly boost retail sales, but there has been a lack of necessary efforts to instill genuine confidence in people to spend.
Camille Boullenois, an analyst at the research firm Rhodium Group in Brussels, believes that these subsidies are far from sufficient and do not address the needed reforms in society. She noted that during the trade war, Beijing does not seem willing to take risks in pursuing structural reforms related to social security, bank loans, and local government finances.
Boullenois said, “The Beijing government believes it is in fierce competition with the United States, and many decisions must be made in the short term, so they are willing to sacrifice long-term economic health for short-term competition.”
In the first quarter of this year, the official economic index tracking consumer goods such as groceries saw a 0.1% decline compared to the same period last year. Currently, Chinese consumption remains persistently weak, with prices continuously falling, increasing the possibility of China falling into a vicious cycle of deflation.
In short, the output of the manufacturing industry has consistently exceeded the demand from domestic buyers, leading manufacturers to heavily discount their products. Many companies have had to reduce the number of employees and wages, further exacerbating deflationary pressures.
Currently, Beijing estimates that the GDP deflator for 2025 will be -0.1%, marking China’s longest period of deflation since the “Great Leap Forward” in the 1960s.