Li, a garment exporter in southern China, said the United States’ steep tariffs have dealt a devastating blow to his business.
The business owner from Guangzhou Province said his orders from the United States “evaporated” as the levies escalated.
Li is not alone. Most Chinese exporters are in the same boat. On social media platforms in China, they discuss their dilemma. A few said they were immune from the impact of U.S. tariffs owing to their irreplaceable products.
These exporters reported that U.S. orders formed the majority of their business—and were the most lucrative. Without the American market, no other region, including Europe, can fill the void.
Exports had been among the few bright spots during China’s bumpy economic recovery since late 2022, when the regime ended its strict COVID-19 lockdown measures. Now it’s hit hard by tariffs.
Beijing’s official economic data show that China’s economy has still been growing, albeit at a slower pace. Some experts dispute these figures—they say China’s economy is already in recession, and U.S. tariffs may make things a lot worse.
“China’s in a real problem period,” Rod Martin, founder and CEO of Martin Capital, told The Epoch Times.
Beijing will have trouble backing down from its standoff with the United States, he said, because Chinese Communist Party leader Xi Jinping “has clearly created his whole persona around being the leader who can stand up to America.”
Given the irreplaceable nature of the U.S. consumer market in China’s export-driven economy, Martin said, Beijing will “have to make a deal at some point, or this recession does turn into a depression.”
William Lee, chief economist at the Milken Institute, an economic think tank based in California, said Xi will likely subsidize Chinese exporters at the cost of further increasing deficits of heavily indebted local governments.
The Chinese regime can probably keep exporters afloat for about six months to a year if it doesn’t resolve the trade war with the United States, Lee projected.
A Grim Outlook
Since the communist regime lifted its draconian zero-COVID lockdown policies in December 2022, China’s economy has been on a prolonged recovery.
Exports in 2023 fell by 5 percent compared to the previous year due to countries, led by the United States, imposing tariffs and other measures to curb China’s overcapacity and dumping.
Last year, China’s exports grew by 6 percent, partly due to importers front-loading their shipments in anticipation of higher tariffs.
Since universal tariffs took effect on April 2, ocean container bookings from China to the United States dropped by 60 percent, according to Ryan Petersen, CEO of shipment company Flexport.
Meanwhile, a key leading indicator shows the world that Li and other Chinese exporters now live in.
In April, China’s factory activity contracted the fastest—a 3 percent month-over-month drop—in two years, according to the country’s National Bureau of Statistics. The manufacturing purchasing managers’ index (PMI) was 49 in April, the lowest since December 2023.
In his post on RedNote, a Chinese social media platform, Li described what happened with a longtime American customer after the new U.S. tariffs took effect.
The client asked for a discount when U.S. tariffs on Chinese goods increased by 10 percent in February. To keep the business, Li took a hit even though his net profit was less than 10 percent. However, the levies increased by another 10 percent a month later. The customer asked to split the increment this time, but he declined because he couldn’t afford to cut the price again.
Then, a heavier blow landed.
On April 2, the United States imposed reciprocal tariffs of another 34 percent on Chinese goods. “The customer didn’t say anything. There was nothing we could do, either. The order simply disappeared,” Li said.
Since then, total additional U.S. tariffs have risen to 145 percent.
Li’s 100-employee small business used to earn a monthly revenue of more than 1 million yuan ($137,000). Now, he has to find a way to sell his garments in China.
Unsurprisingly, he faces fierce pricing wars with existing domestic sellers and many exporters in a similar situation.
In their online discussions, these exporters say that selling inside China is a “brutal” game because their products are of a higher quality, and therefore cost more. Matching or beating domestic vendors’ prices means selling at a loss. It also doesn’t help that China’s domestic market is still under deflationary pressure and needs stimulation for consumption.
Li said he has no choice but to keep going. Once workers leave the factory, the facility won’t be able to resume production overnight if orders come back.
“I’m having difficulties paying salaries,” said Li. “But I cannot stop producing.”
Chinese state-run media reported Li’s story, but with an optimism that’s not shared in his own online posts. Selling exports domestically is a great path forward, according to the propaganda. The Epoch Times has reached out to Li for further comment.
Another way to avoid tariffs is transshipment—sending products to a third country before they’re shipped to the United States. However, that has also become more difficult. For those who want to establish a facility in Vietnam, the production capacity there is small compared to China’s capacity, the manufacturers said. In addition, the United States has applied a universal 10 percent tariff that is in place for the usual transshipment hubs, including Vietnam and Cambodia.
Additionally, the United States on May 2 started collecting a $25 per-item duty for parcels from China valued under $800, which were previously exempt from duties. The fee will increase to $50 on June 1.
From Recession to Depression
Treasury Secretary Scott Bessent recently told reporters that China could “lose 10 million jobs very quickly” if the U.S. tariffs on Chinese goods stay on.
In early April, Goldman Sachs estimated that China could lose between 10 million and 20 million jobs due to tariffs.
A recession is defined as two consecutive quarters of declining GDP. However, experts say the world will not see a recession reflected in China’s official data.
While Beijing said its 2024 GDP growth was right on target at 5 percent, many banks saw the actual growth rate at 3.5 percent or below. According to global consultancy firm Rhodium Group, the Chinese economy grew between 2.4 and 2.8 percent last year.
“For China, having a GDP growth less than 4 percent is already a recession because they need a high rate of growth to absorb the youth coming out of school, and also to provide jobs,” Lee told The Epoch Times.
The private estimates of China’s economic growth are even lower, he said.
In a series of moves last year, China issued a stimulus package with a total value of 10 trillion yuan ($1.4 trillion). Last October, Daniel Rosen, founding partner of Rhodium Group, said that if China needed a 6 trillion yuan stimulus, “that means they are growing zero percent this year.”
Following his reasoning, a 10 trillion yuan stimulus would mean negative growth.
“China’s economic structure was built based on globalization,” Yeh Yao-Yuan, professor of international studies at the University of St. Thomas in Houston, told The Epoch Times.
“However, after China’s overcapacity distorted the global markets for so long, and the global markets began to say ‘no,’ the domestic market won’t be able to absorb the overproduction. It’s only a matter of time before the Chinese economy enters a depression.”
Frank Xie, business professor at the University of South Carolina Aiken, thinks that China may already be in a state of depression, a period of prolonged recession.
The country, he said, is suffering a severe, enduring recession marked by high unemployment and loss of wages. “All of that was prolonged by poor government policy,” he told The Epoch Times.
Xie said the situation will worsen when a new wave of college graduates enters the job market this summer.
In June, more than 12 million college students will graduate. Among them, about 7 million will enter the job market, and the remainder will pursue advanced studies.
China’s official youth unemployment rate was at 16.5 percent in March.
The regime paused reporting the number in June 2023, when it hit a record of 21.3 percent. The Epoch Times reported at the time that the actual youth unemployment rate may have been much higher.
The regime resumed reporting of unemployment figures in January 2024, but began excluding students from its methodology.
Signs to Watch
If official data won’t tell the accurate picture of China’s economy, what signs can observers watch for to know whether it has entered a worse phase?
Among all statistics, export data is difficult to forge because one country’s exports would need to equal other countries’ imports, Xie said.
Social unrest due to the lack of jobs will be another sign of China entering a depression, according to Yeh.
Exports supported a third of China’s economic growth last year, the highest level since 2017, according to the Mercator Institute for China Studies. China is yet to find another growth engine to take the place of exports.
China’s Commerce Ministry, in a subtle shift of tone on May 2, indicated that it was open to trade talks.
Now, for many Chinese exporters, competing internally seems to be the only viable way to move piled inventories and keep producing.
A shoe wholesaler in Guangdong Province keeps posting advertising videos showing the difficulties of keeping 1,000 jobs alive and the high quality of its products because they are tailored for exports. The sales manager said the shoes are made for well-known Western brands, “they are just without the logos.”
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