US tariffs could lead to depression in China, experts say

Li, a clothing exporter in southern China, said the sudden US tariffs had devastated his business.

The Guangzhou employer said his orders from the US had “evaporated” as taxes escalated.

Li is not alone. Most Chinese exporters are on the same boat. On Chinese social media platforms, they are debating the dilemma. Some said they are immune from the effects of US tariffs for their irreplaceable products.

These exporters reported that the US order formed a large part of their business, and were the most advantageous. Without the US market, other regions, including Europe, cannot fill the blanks.

It has been one of several bright spots during a bumpy economic recovery in China since late 2022, when the administration ended strict COVID-19 lockdown measures. Now it’s been hit hard by tariffs.

Official economic data from Beijing shows that despite the slow pace, China’s economy is still growing. Some experts have challenged these figures. They say that China’s economy is already in a recession and US tariffs may make things worse.

“China is in a real problem period,” Rod Martin, founder and CEO of Martin Capital, told the Epoch Times.

He said Beijing will struggle to retreat from its standoff with the US as China’s Communist Party leader Xi Jinping “evidently created a leader who can stand up to America.”

Given the irreplaceable nature of the US consumer market in China’s export-driven economy, Martin said Beijing “has to trade at some point, or this recession turns into depression.”

William Lee, chief economist at the Milken Institute, a California-based economic think tank, said XI is likely to subsidize Chinese exporters at the expense of further increasing the shortage of significantly indebted local governments.

Lee predicted that the Chinese administration could maintain exporters for about six months to a year, if it didn’t resolve the trade war with the US.

A harsh outlook

China’s economy has been recovering for a long time since the communist regime lifted its radical Zero Covid lockdown policy in December 2022.

Exports in 2023 fell 5% compared to the previous year, according to a US-led country, imposed tariffs and other measures to curb China’s overcapacity and dumping.

Last year, China’s exports rose 6%. This is because importers have front-loaded the cargo in anticipation of higher tariffs.

Meanwhile, key key indicators show the world where Li and other Chinese exporters currently live.

According to the national National Bureau of Statistics, in April, China’s factory activities contracted the fastest in two years (a 3% decrease in the month). The Manufacturing Purchase Manager Index (PMI) was 49 in April, the lowest since December 2023.

In his post on Renote, a Chinese social media platform, Li explained what happened to longtime American customers after the new US tariffs came into effect.

The client asked for a discount if US tariffs on Chinese products increased by 10% in February. To keep the business up, Li had a net profit of less than 10%, but it was a hit. However, taxation increased by 10% a month later. The customer asked to split the increment this time, but he declined as he couldn’t afford to cut the price again.

Heavyer blows then landed.

On April 2, the US imposed an additional 34% mutual tariff on Chinese products. “The customers said nothing. There was nothing we could do. The order simply went away,” Lee said.

Since then, the total US additional tariffs have risen to 145%.

Li’s 100 employers, SMEs, had earned more than 1 million yuan ($137,000) monthly revenue. Now he has to find a way to sell clothes in China.

Naturally, he faces a fierce pricing war between existing domestic sellers and many exporters in similar circumstances.

In online discussions, these exporters say that sales within China are “brutal” games, so the products are “brutal” because they are of higher quality and therefore more expensive. Matching or breaking prices for domestic vendors means losing and selling. Also, it doesn’t help that China’s domestic market is still under deflationary pressure and requires stimulation for consumption.

Lee said he had no choice but to continue making the choice. Once workers leave the factory, if orders return, the facility will not be able to resume production overnight.

“I’m struggling to pay my salary,” Li said. “But I can’t stop production.”

China’s national media It has been reported Li’s story is optimistic and has not been shared in his own online post. According to propaganda, selling exports domestically is a big way forward. The Epoch Times contacted Li for further comment.

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Another way to avoid customs duties is by transport. It is to place the product in a third country before it is shipped to the US. But that’s become even more difficult. For those looking to establish facilities in Vietnam, production capacity is less than that of China, the manufacturer said. Additionally, the US applies the universal 10% tariffs introduced in regular transshipment hubs, including Vietnam and Cambodia.

A recession is defined as two consecutive quarters of a decline in GDP. However, experts say the world is not seeing a recession reflected in official Chinese data.

“In China, making GDP growth below 4% is already a recession as it requires a high growth rate to graduate from school and provide jobs,” Lee told the Epoch Times.

Private estimates of China’s economic growth are even lower, he said.

In a series of moves last year, China issued a stimulus package totaling 10 trillion yuan ($1.4 trillion). Last October, founding partner of Rhodium Group, Daniel Rosen said if China needs 6 trillion yuan stimuli, “that means there’s a zero percent increase this year.”

Following his reasoning, the 10 trillion yuan stimulus means negative growth.

“China’s economic structure was built on globalization,” Yeh Yao-Yuan, an international research professor at St. Thomas University in Houston, told the Epoch Times.

“However, after China’s overcapacity distorted the global market for a long time, the global market began saying “no.” The domestic market cannot absorb overproduction. It’s only a matter of time before the Chinese economy enters depression. ”

Frank Shee, a business professor at the University of South Carolina Aiken University, believes China could be in a state of depression already in a period of recession.

He said the country is suffering from a severe, lasting recession marked by high unemployment and loss of wages. “All of that was extended by the government’s poor policies,” he told the Epoch Times.

Xie said the situation will get worse once a new wave of university graduates enters the job market this summer.

Over 12 million university students will graduate in June. Among them, approximately 7 million people will enter the job market, with the rest pursuing advanced research.

China’s official youth unemployment rate was 16.5% in March.

The administration resumed reporting unemployment rates in January 2024, but began to exclude students from its methodology.

Signs to see

If official data does not convey the exact situation in China’s economy, which can observers monitor to know which signs have entered the worse stage?

Of all statistics, it is difficult to build export data because exports from one country need to be comparable to imports from another country, Xie said.

According to Yeh, social unrest due to employment shortages will be another sign that China will enter depression.

China’s Commerce Ministry on May 2 showed that it was open to trade talks with a subtle shift in tone.

Now, for many Chinese exporters, internal competition appears to be the only viable way to move stacked stocks and continue to produce.

Guangdong shoe wholesalers continue to post advertising videos showing that it is difficult to maintain the high quality of their products as they are tailored to exports. The sales manager said the shoes are made for famous Western brands. “It’s just that there’s no logo.”

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