## The Weight of Tariffs: A Looming Crisis for China
As Xi Jinping acknowledged this week, “There are no winners in a trade war or a tariff war.” His assessment rings particularly true when applied to China, which stands to face significant economic hardship as a result of escalating tariffs.
For decades, China has operated under a system characterized by what many consider predatory and unfair trade practices. Despite concerns raised by the U.S. and other nations over these years, these issues largely went unaddressed. President Trump initiated action in 2018 with initial tariffs, but the Chinese response proved inadequate. This month, he further escalated tensions, increasing general tariff rates on Chinese goods to 145%.
The timing couldn’t be worse for China. The nation’s economy is already struggling. Economic data reveals a troubling picture:
- Consumer Price Index declined for the second consecutive month in March.
- Producer Price Index has been negative for an unprecedented 30 months straight.
These factors suggest China is experiencing, and will continue to experience, economic contraction.
Adding to the challenges, Xi Jinping’s administration shows a reluctance to prioritize domestic consumption as a cornerstone of their economy. Consumption currently accounts for an unusually low 38% of gross domestic product – a figure that continues to decline. Consequently, China’s primary route to economic recovery relies on exports.
However, Trump’s tariffs effectively close off the crucial U.S. market – which represents over a third of global consumer spending – to many Chinese goods.
“Due to many reasons, the world has been deglobalizing for years,” stated trade expert Alan Tonelson. “Now, the Trump tariffs are greatly speeding up this process, and further threatening the well-being of the People’s Republic of China and other export-led economies.”
This shift away from globalization is accelerating due to factors beyond just U.S. tariffs. As Larry Fink, CEO of BlackRock, noted in a letter to shareholders: “The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.” The COVID-19 pandemic had already weakened global interconnectedness, further exacerbating this trend.
In this evolving landscape, other nations are unlikely to allow China to flood their markets with goods previously destined for the U.S. Their own industries need protection and cannot withstand such an influx.
The consequences are already evident: export factories in southern China are shuttering, orders have dried up, and workers are returning to their home villages.
Simultaneously, China is grappling with a financial crisis reminiscent of 2008. Following a massive stimulus program initiated by Xi’s predecessor, the nation has accumulated unsustainable debt – estimated to be as high as 375% of GDP. High-profile defaults, particularly in the property sector (where approximately 70% of household wealth is invested), are compounding the problem.
Despite these mounting pressures, Xi Jinping appears unwilling to engage in negotiations with President Trump. Trump stated last Wednesday that China “wants to make a deal,” but doesn’t know “how quite to go about it.”
The root of this impasse lies within the Chinese political system itself. Xi has cultivated an environment where only confrontational responses are deemed acceptable, making any perceived retreat or concession a potential threat to his authority. Reports suggest growing discontent among military leadership and other influential figures.
Xi recently declared, “China does not flinch from any unjust suppression,” reinforcing his uncompromising stance.
Ultimately, Xi has placed himself in an untenable position. He faces a stark choice: either allow the Chinese economy to falter through intransigence or risk political repercussions by seeking compromise. He chooses the former, refusing to initiate talks with President Trump. China must now bear the consequences of this decision.
