Can China Fight Deflation and Trump's Tariffs at the Same Time?

New York Times

17-04-2025

Dozens of delivery drivers in yellow and blue uniforms crowded around a snack street in downtown Shanghai, on standby for their next order. The work was temporary, many said, a gig to help pay off a debt or fill the gap before a better paying job.
For China's workers, financial security is further out of reach than ever. They are stuck in China's deflation loop. Stubbornly low prices on everything from eggs to a hot delivered meal have cut into the profits that businesses make, gnawing at the money workers earn. Everyone has become tighter with money, pushing down prices even more.
A bruising trade fight with the United States is the last thing anyone wanted, especially policymakers who have floundered to stop prices falling. It threatens to make things harder than they already were for China's hundreds of millions of workers.
Cao Zhi, 27, left his low-paying job selling car insurance to join the food delivery platform Ele.me four years ago in Shanghai. He said he has to work at least one extra hour each day to take home the same amount of pay that he was making when he started.
He said many of his friends have experienced a similar earnings erosion.
'I feel that it is universal,' said Mr. Cao, who is trying to pay off a car loan he owes in his hometown in the central province of Shanxi.
The Chinese government has for several years been dealing with deflation, the pernicious side effect of a property crisis crawling through the economy and putting a freeze on much economic activity. The big exception has been in manufacturing, where factories are making far more than Chinese consumers can buy. Those goods, including electronics and clothes, are sent overseas to countries like the United States. Exports accounted for nearly a third of China's economic growth last year.
Now, Beijing must go toe-to-toe with the United States, which is the biggest buyer of its goods and is aggrieved at how little China buys from it. The row escalated last week when President Trump placed a minimum tariff of 145 percent on all Chinese goods, making it all but impossible for China to export its goods to the United States.
'It makes a fairly bad situation worse,' said Christopher Beddor, deputy director of China research at Gavekal Dragonomics. 'The economy has been grinding through one deflationary shock for several years now, and there is another shock that is imminent.'
China's economy grew steadily at the start of the year, propelled by a surge in exports ahead of trade restrictions. But economists estimate that exports will soon drop to the lowest level since the 2008 financial crisis.
'The trade war is going to leave some sort of hole in the economy,' Mr. Beddor said.
Consumer prices fell by 0.1 percent in March compared with the same period a year earlier, the second consecutive month that happened, and producer prices dipped by 2.5 percent. While there were some months of exception, prices have fallen for six consecutive quarters.
One way to tackle deflationary forces would be to fire up domestic spending, which accounts for around 39 percent of China's growth, significantly less than the average for most major economies. But measures taken by Beijing so far to do this — mostly in the form of subsidies like the trading in of old goods — have barely moved the needle. This week two of China's most popular e-commerce platforms, Tencent and Douyin, said they would help export-oriented businesses market themselves to consumers in China.
Beijing has been battling the pressures of deflation since its 'zero Covid' policy, which dampened business outlook and consumer appetite to spend. And the property meltdown has erased much of the net worth of many Chinese families, which traditionally placed most of their savings into real estate. The job losses in the real estate sector, which at its peak accounted for a third of the economy, are staggering.
Wang Longhe, a construction worker and plumbing specialist from China's northeast Liaoning Province, recently traveled some 1,600 miles to the southern city of Zhongshan for a two-day job helping to build an aquarium. Nearly all construction projects in the northeast of China had been mothballed, he said.
When times were good, Mr. Wang said he could make as much as $13,600 a year. Now he's lucky if he can make half that, he said.
'There are not many jobs, basically no work and now in our hometown in the northeast, people who worked in our industry are staying at home,' Mr. Wang said while taking a break from his work.
'I take it one step at a time,' said Mr. Wang, who is 56. 'Life is tight, making money is hard, and you can't think about the future.'
The number of people choosing to work as delivery and ride share drivers has grown rapidly in recent years, as people were laid off from their jobs and small businesses went bankrupt. There were already 200 million people in the gig economy in 2020, according to data cited by former premier Li Keqiang at the time. The trade war could accelerate the trend. As many as 20 million workers could lose their jobs because of the sudden plunge in exports from China to the United States, according to an estimate from Goldman Sachs.
As more workers crowd into the gig economy, making jobs harder to find and forcing wages lower, the government is leaning on companies like JD.com and Meituan, whose apps provide the platform for delivery jobs, to provide pension benefits and insurance.
Chen Xiaolan worked in a factory making air-conditioner compressors for a decade before eventually moving to Beijing to become a driver for China's leading ride-hailing platform, Didi. Mr. Chen, 38, considers himself lucky because he owns the car that he drives for work. He usually puts in 12-hour days, six days a week. Those who rent a car usually must work seven days a week, he said.
Recently work was slow, Mr. Chen said. 'It's not easy to do now; there are more cars and fewer orders.'
But there aren't a lot of alternatives to gig work these days.
Liu Mingdong, a driver for the food delivery platform Ele.me, tried running his own business selling hardware online for three years. But he found more competitors and fewer buyers.
'Who knows if made any money,' said Mr. Liu, 36, who arrived in Shanghai in March and started working for the takeout delivery platform, Ele.me, two days later.
'I guess,' he added, 'I'm unlucky.'