Chinese exporters are redirecting goods to the domestic market as US tariffs rise to 145%, leading to reduced orders.

Major ecommerce platforms like JD.com, Tencent, and Douyin, supported by local governments, are offering major discounts to absorb the surplus inventory.

Economists warn that the oversupply of discounted goods is intensifying price wars, contributing to deflation and weakening employment.

Exporters face shrinking margins and rising financial risks, while millions of jobs tied to US-bound production hang in the balance.

With no major stimulus planned, Beijing hopes the tariff pressure will ease in one to two years, though uncertainty remains high.

🔗 Source: CNBC

🧠 Food for thought

1️⃣ Current US-China tariffs represent unprecedented escalation compared to previous trade tensions

Today’s 145% US tariffs on Chinese goods represent a qualitatively different scenario than the previous trade conflict that began in 2018.

In the earlier trade war, US tariffs peaked around 25% on $250 billion of Chinese goods, while China retaliated with tariffs on $110 billion of US products1.

The dramatic escalation to 145% effectively eliminates rather than merely handicaps trade, as evidenced by reports that many US businesses have significantly reduced orders from China2.

This shift from targeted pressure to prohibitive barriers has forced Beijing to explore alternatives, leading to the domestic market redirections described in the article.

The scale of this disruption is reflected in supply chain executive reports of “a significant drop in container exports from China,” indicating a major restructuring rather than mere trade adjustment2.

2️⃣ China’s deflation problem creates a challenging feedback loop

China was already struggling with persistent deflation before the latest tariff escalation, with producer prices (PPI) falling for 29 consecutive months through March 2025.

The redirection of export goods to the domestic market risks creating a deflationary spiral—discounted goods lead to price wars, which reduce corporate profits, potentially triggering layoffs that further weaken consumption3.