Jacky Ren, owner of Gstar Electronics Appliance Co., a kitchen appliance factory in China, paints a grim picture. He states that exporters in his industry are now operating at a loss to maintain their U.S. client base, with virtually no leverage to resist demands for lower prices. The stark choice, as Ren puts it, is between immediate collapse and a slow, painful decline: "If an exporter does not take such orders, you will die immediately. So, people think it’s better to die slowly.”
Deepening Economic Pressure Points
The pain from U.S. tariffs is intensifying across China, especially for smaller exporters like Ren's, many of whom did not relocate production abroad after President Donald Trump first imposed tariffs during his initial term. This escalating pressure, compelling companies to accept losses or implement wage and job cuts to survive, offers Washington a critical bargaining chip as trade talks continue in the coming weeks and months. The ongoing negotiations aim to rebalance the trade relationship between the two economic giants.
Professor Zhiwu Chen, chair professor of finance at the University of Hong Kong, underscores the severity of the situation for these smaller entities. “If it lasts more than three or four months, I think many of these small and medium-sized enterprises will not be able to bear it,” he warns, adding that this economic distress "is definitely a bargaining chip for the United States.”
Recent discussions in London are expected to build upon initial agreements made in Geneva last month, where both sides conceded to reducing tariffs from triple-digit levels to still damaging, but at least trade-enabling, rates. However, U.S. levies on Chinese goods currently remain 30 percentage points higher than they were last year.
Official statistics reveal the extent of the economic impact. In April, when tariffs were at their peak, the number of loss-making Chinese industrial firms surged by 3.6% year-on-year, reaching 164,467 – a staggering 32% of the total. Furthermore, industrial capacity utilization in China dropped to 74.1% in the first quarter of this year, coinciding with Washington's tariff increases, down from 76.2% in the last quarter of 2024, and remains near record lows.
While China's overall export growth rate of 4.8% in May might suggest resilience—even as U.S. exports contracted by over 30%—the intense competition among Chinese manufacturers vying for a share of subdued external demand is evident in falling prices. Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, notes, “People forget, but the current tariff level is already quite painful.” She acknowledges this as a "weakness" for Beijing but cautions it's "not a big card" for Washington, which faces its own concerns regarding high inflation and product scarcity. Beijing, she believes, remains confident in its ability to withstand more pain than its rival.
The Human Cost: Delayed Wages and Job Insecurity
The impact of these trade dynamics is felt directly by workers. Reuters reported last month that prior to the Switzerland meeting, Beijing had grown increasingly concerned about internal signals of struggling Chinese firms on the brink of bankruptcy, particularly in labor-intensive sectors like furniture and toys. While the subsequent tariff rollback may have averted a worst-case scenario of mass layoffs, analysts warn that millions of jobs remain at risk.
Candice Li, a marketing manager for a medical devices manufacturer in southern China, illustrates the human cost. Her employer has not paid wages for the past two months due to cash flow issues. These issues stem from new demands by U.S. clients, who, seeking to shield themselves from tariff uncertainty, no longer offer advance deposits for orders and demand payment only 120-180 days after delivery. Li explains that because other Chinese firms are accepting these terms, her employer is in no position to refuse. “They have us under their thumb,” Li says. “It looks calm on the surface, but it’s really hard to do business now.” As a result of the unpaid wages, a quarter of the staff has already left, making it "really hard to keep the company running."
Broader Economic Landscape and Future Outlook
It's important to note that not all Chinese firms are experiencing the same level of distress. In the short term, neither the United States nor other nations can significantly reduce their reliance on supply chains from an economy that produces roughly a third of the world's goods. The pain is primarily concentrated among small firms in non-essential sectors like Christmas decorations, or industries where China can be easily replaced by other producers, such as household appliances and lower-to-mid-range electronics.
Overall, China's industrial profits still saw a 1.4% year-on-year rise in January-April, according to official statistics that include data from firms with annual revenue of at least 20 million yuan ($2.78 million). Shuang Ding, Standard Chartered’s chief Greater China and North Asia economist, suggests that China's headline resilience has been bolstered by U.S. importers front-loading orders ahead of higher tariffs, coupled with Beijing's increased fiscal spending and interest rate cuts. However, analysts caution that as these mitigating factors diminish in the coming months, Beijing may become increasingly uncomfortable with the economic strain.
He-Ling Shi, economics professor at Monash University in Melbourne, emphasizes China's continued reliance on low-end manufacturing and exporting sectors to support its macroeconomic stability. While the Chinese central government may not need to react as immediately as the American government to industry pressure, Shi concludes, “in the long term, it’s still a big concern.”