If you say the name Donald Trump in the halls of wholesale markets and trade fairs in China, you’ll hear a faint chuckle.
The US president and his 145% tariffs have not instilled fear in many Chinese traders.
Instead, they have inspired an army of online Chinese nationalists to create mocking memes in a series of viral videos and reels – some of which include an AI-generated President Trump, Vice-President JD Vance and tech mogul Elon Musk toiling on footwear and iPhone assembly lines.
China is not behaving like a nation facing the prospect of economic pain and President Xi Jinping has made it clear that Beijing will not back down.
“For more than 70 years, China has always relied on self-reliance and hard work for development… it has never relied on anyone’s gifts and is unafraid of any unreasonable suppression,” he said this month.
His confidence may come in part because China is far less dependent than it was 10 years ago on exports to the US. But the truth is Trump’s brinkmanship and tariff hikes are pushing on pressure points that already exist within China’s own struggling economy. With a housing crisis, increasing job insecurity and an ageing population, Chinese people are simply not spending as much as their government would like.
Xi came to power in 2012 with a dream of a rejuvenated China. That is now being severely tested – and not just by US tariffs. Now, the question is whether or not Trump’s tariffs will dampen Xi’s economic dreams, or can he turn the obstacles that exist into opportunities?
Xi’s domestic challenges
With a population of 1.4 billion, China has, in theory, a huge domestic market. But there’s a problem. They don’t appear willing to spend money while the country’s economic outlook is uncertain.
This has not been prompted by the trade war – but by the collapse of the housing market. Many Chinese families invested their life savings in their homes, only to watch prices plummet in the last five years.
Housing developers continued to build even as the property market crumbled. It’s thought that China’s entire population would not fill all the empty apartments across the country.
The former deputy head of China’s statistics bureau, He Keng, admitted two years ago that the most “extreme estimate” is that there are now enough vacant homes for 3 billion people.
Travel round Chinese provinces and you see they are littered with empty projects – lines of towering concrete shells that have been labelled “ghost cities”. Others have been fitted out, the gardens have been landscaped, curtains frame the windows, and they appear filled with the promise of a new home. But only at night, when you see no lights, can you tell that the apartments are empty. There just aren’t enough buyers to match this level of construction.
The government acted five years ago to restrict the amount of money developers could borrow. But the damage to house prices and, in turn, consumer confidence in China, has been done and analysts have projected a 2.5% decline in home prices this year, according to a Reuters poll in February.
And it’s not just house prices that worry middle-class Chinese families.
They are concerned about whether the government can offer them a pension – over the next decade, about 300 million people, who are currently aged 50 to 60, are set to leave the Chinese workforce. According to a 2019 estimate by the state-run Chinese Academy of Social Sciences, the government pension fund could run out of money by 2035.
There are also fears about whether their sons, daughters and grandchildren can get a job as millions of college graduates are struggling to find work. More than one in five people between the ages of 16 and 24 in urban areas are jobless in China, according to official data published in August 2023. The government has not released youth unemployment figures since then.
The problem is that China cannot simply flip a switch and move from selling goods to the US to selling them to local buyers.
“Given the downward pressure on the economy, it is unlikely domestic spending can be significantly expanded in the short term,” says Prof Nie Huihua at Renmin University.
“Replacing exports with internal demand will take time.”
According to Prof Zhao Minghao, deputy director of the Center for American Studies at Fudan University, “China does not have high expectations for talks with the Trump administration… The real battleground is in the adjustment of China’s domestic policies, such as boosting domestic demand.”
To revive a slowing economy, the government has announced billions in childcare subsidies, increased wages and better paid leave. It has also introduced a $41bn programme offering discounts on items such as consumer electronics and electric vehicles (EVs) to encourage more people to spend. But Prof Zhang Jun, the Dean of Economics at Fudan University, believes this is not “sustainable”.
“We need a long-term mechanism,” he says. “We need to start increasing residents’ disposable income.”
This is urgent for Xi. The dream of prosperity he sold when he took power 13 years ago has not become reality.
