Tariff War Hits Chinese Worker

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.bloomberg.com/news/articles/2025-04-14/tariffs-to-impact-millions-of-chinese-workers-in-blow-to-economy
Trump’s 145% tariffs on China’s goods are threatening to obliterate its access to the world’s biggest economy, with Goldman Sachs Group Inc. estimating that up to 20 million people — or about 3% of the labor force — may be exposed to US-bound exports. A full economic divorce would roil a workforce already drained by widespread salary cuts and layoffs.

https://www.business-standard.com/world-news/trump-tariffs-to-impact-millions-of-chinese-workers-in-a-blow-to-economy-125041400301_1.html

On top of an uncertain business outlook, productivity gains from China’s adoption of artificial intelligence and automation likely contributed to slowing demand for employment despite an uninterrupted economic recovery during the first months of the Trump presidency.

Small factories with tiny profit margins have played a central role in China’s international competitiveness. Many could now face disaster.

And workers hope they will still have jobs in the coming weeks and months.

A few garment factories that mainly supplied the United States market have already closed temporarily as their owners wait for more clarity on tariffs.

But China already faced a huge glut of factory capacity even before Mr. Trump began closing the American market this year to many imports from China. Customers elsewhere have demanded ever deeper discounts.

Ruinously low prices for manufacturers have become particularly prevalent in the domestic market in China. Many Chinese consumers are now extremely frugal after losing their life savings in the country’s housing market crash.

Managers at five Guangzhou factories all said that they had seen no sign in recent weeks that workers would accept lower wages. A decades-long slide in China’s birthrate has left a national shortage of factory workers, particularly among the young.

We must remember the economic war upon China began during the first term of the current president in addition to China’s real estate implosion.

This is no small problem for the Chinese Communist Party (CCP). It has long had an implicit contract with the Chinese people under which they will quietly tolerate the party in power and the party will deliver them prosperity. The authorities increasingly seem to be failing on their end of the bargain. So far, the public has taken a passive approach to the situation, cutting back on spending and trying, against the odds, to rebuild wealth. If things go to extremes, however, there is no telling how the Chinese people will react. There was after all considerable violence during the recession of 2009.

https://www.thinkchina.sg/economy/chinas-middle-class-slipping-back-povertyIs
Is China’s middle class slipping back into poverty?

the assets of 43% of new middle-class families shrank in 2023; this figure was 31% in 2022 and 8% in 2021.

high-paying jobs, which provide cash flow to the middle class, are also facing waves of pay cuts and retrenchments.

The Chinese middle cuts back on its spending.

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Welcome to the USian factory worker experience of the last 40 years.

Musical interlude, from the 80s, when, the offshoring of production, and the “service economy” nonsense, took hold in the US.

As suggested previously, yes, tariff inflated prices may result in some lowered demand, but will the vanished “jobs” be exported to the countries whose goods are driven out of the US by the tariffs?

Steve

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I suspect this is the real problem. China’s exports to the US, while prodigious, are still only 10% of their total exports. Losing half that (I expect there will still have things people want) will be a blow but hardly life-threatening.

I also expect that the results will be worst for the small manufacturers - just as these tariffs will be felt most strongly by the little guys here (to include family farmers and such, as the big players have well developed supply chains and customers around the world and can mitigate the effects of a lost market to some degree.)

Whether this is actually an existential threat to the CCCP I have my doubts. Uncomfortable, sure, but look what we rode through in 2008, or what Britain went through after Brexit, or similar escapades in other countries across time and the world.

I fully expect The Party to take some kind of ameliorating measures, whether that’s in the form of “stimulus payments” or similar, or the kinds of things other developed countries do in times of stress.

Frankly, given the brusqueness of the Trump approach, I expect Xi to “keep calm and carry on”, and to (appropriately) blame the Americans for the highhandedness and arrogance of how this all came to pass, rather than through measured negotiations as reasonable adults try to do.

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The Chinese were happy last week. The government is promising an industrial buildout for internal consumption. Not going to happen as planned, and a huge waste of resources.

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China is currently experiencing a liquidity crunch, with the People’s Bank of China (PBOC) injecting substantial amounts of short-term funds to address the issue. This crunch is manifested in rising money market rates and some disruptions to trading, despite the PBOC’s efforts. The situation has prompted concerns about potential wider financial instability, especially given the ongoing property sector crisis and deflationary pressures.

The liquidity crunch, combined with the property sector crisis and deflation, raises concerns about the stability of the Chinese financial system. Some analysts have even suggested that the situation could be a liquidity trap, where the economy struggles to recover even with monetary policy easing.

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