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

On a bustling street corner in downtown Shanghai, the scene has become all too familiar: a crowd of food delivery drivers in bright yellow and blue jackets idling with their scooters, chatting quietly or staring at their phones, waiting for the next order. For many of these workers, this is not a long-term career, but rather a short-term survival strategy. Some are trying to pay off personal debts; others are simply biding their time until a more stable or better-paying job comes along.

Across China, economic hardship has been tightening its grip, leaving millions of workers in an increasingly precarious position. The country’s labor force is caught in a dangerous cycle of deflation, where persistently falling prices are eroding corporate profits and dragging down workers’ earnings. This deflationary spiral has made both consumers and businesses reluctant to spend, intensifying the pressure on prices and contributing to the bleak economic environment.

This delicate situation is now being threatened further by worsening trade relations with the United States. The recent imposition of harsh tariffs by the U.S. is expected to deliver another blow to China’s already fragile economy, creating even more challenges for workers and policymakers alike.

Take the example of 27-year-old Cao Zhi, who left a modest job in auto insurance to become a delivery driver with the Ele.me food delivery platform in Shanghai. What began as a way to earn more money soon turned into a struggle to maintain the same income level. Today, Cao says he must work longer hours just to take home the same pay he received four years ago.

“I have to put in at least an extra hour every day to earn what I used to make,” Cao explained, adding that many of his peers in the delivery industry are experiencing similar declines in income. “This isn’t just my problem—it’s happening to almost everyone I know.”

Cao, who is trying to repay a car loan in his hometown in Shanxi province, is emblematic of a broader crisis gripping Chinese workers. For several years, China has been dealing with deflation—a persistent drop in prices that often signals economic trouble. A sluggish real estate sector, once a cornerstone of national economic growth, has compounded the issue, freezing investment and reducing household wealth.

The one bright spot has been manufacturing. Chinese factories continue to produce far more than the domestic market can absorb, so many goods—ranging from clothing to consumer electronics—have been exported abroad. In fact, exports made up nearly one-third of China’s economic growth in the past year.

But even that source of strength is now under threat. The United States, which remains China’s largest export market, has grown increasingly frustrated by the imbalance in trade between the two countries. Last week, the situation took a dramatic turn when the U.S. announced a sweeping 145 percent minimum tariff on all Chinese imports—essentially cutting off one of China’s most important economic lifelines.

“It’s a case of bad going to worse,” said Christopher Beddor, the deputy director of China research at Gavekal Dragonomics. “The Chinese economy has been dealing with the shock of falling prices for several years. Now, another major disruption is looming.”

Earlier this year, there were signs of hope as China’s economy experienced modest growth, largely driven by a rush in exports before the new U.S. trade restrictions took effect. However, that momentum is unlikely to continue. Analysts predict that Chinese exports may soon fall to levels not seen since the 2008 global financial crisis.

“This trade conflict will leave a gap in the economy that will be difficult to fill,” Beddor warned.

In March, consumer prices dropped by 0.1 percent compared to the same time last year—the second month in a row of decline. Producer prices, which reflect the cost of goods leaving factories, plunged 2.5 percent. While there have been occasional months of positive growth, the general trend has been deflationary for over 18 months.

One commonly suggested remedy is to boost domestic consumption, which currently contributes just 39 percent to the country’s overall growth—significantly lower than in other major economies. Beijing has introduced policies aimed at stimulating spending, such as trade-in subsidies for old consumer goods, but so far these efforts have had limited effect. Recently, major online platforms like Tencent and Douyin have announced initiatives to help manufacturers pivot toward domestic consumers, but it’s unclear how effective these campaigns will be.

The underlying problem is deeper. The government’s strict zero-COVID policies in recent years severely damaged consumer confidence, and the collapse of the housing market has wiped out a large portion of the wealth held by middle-class Chinese families, who traditionally viewed real estate as the most secure investment. Many of these households are now reluctant to spend, further weakening domestic demand.

The consequences are being felt far and wide. Wang Longhe, a 56-year-old construction worker and plumbing technician from Liaoning Province in northeastern China, recently traveled over 1,600 miles to Zhongshan in the south for a short-term job building an aquarium. With construction projects on hold across the northeast, Wang said work has dried up completely.

“In the past, I could earn up to 100,000 yuan (roughly $13,600) a year,” Wang recalled. “Now, if I make even half that, I’m lucky.”

Taking a break during his shift, Wang reflected on the uncertainty of his situation. “Jobs are scarce. There’s nothing back home. Everyone in my field is just staying indoors. You can’t think about the future anymore. You just take it one day at a time.”

As traditional job opportunities vanish, more and more people are turning to gig work as a last resort. The number of freelance and platform-based workers has skyrocketed in recent years. By 2020, there were already an estimated 200 million gig workers in China, according to official figures cited by former Premier Li Keqiang. Analysts now warn that the ongoing trade war could cause another 20 million people to lose their jobs due to the sharp decline in exports to the U.S., pushing even more individuals into the gig economy.

With the labor market becoming oversaturated, competition among gig workers is fierce, driving down pay. In response, the government has started urging large tech companies like JD.com and Meituan to take on more responsibility, including offering basic social protections such as pensions and health insurance to their gig workers.

Chen Xiaolan, 38, used to work in a factory producing parts for air conditioners. He now drives full-time for Didi, China’s largest ride-hailing platform. Chen considers himself fortunate—he owns his own vehicle, which gives him more flexibility. But even so, he usually works 12 hours a day, six days a week just to get by.

“Business is slowing,” he noted. “There are more drivers out there and fewer customers.”

For many people, like Liu Mingdong, 36, gig work has become the only viable option. After three years running a small online hardware store, Liu struggled to find buyers and was overwhelmed by competition. He moved to Shanghai in March and began working for Ele.me within two days of arriving.

When asked about his experience, Liu just shrugged. “I don’t even know if I made any profit with my store,” he said. “I guess I’m just unlucky.”

As China confronts mounting economic pressure from within and abroad, workers across the country are bearing the brunt of the crisis. From food couriers to construction workers to ride-share drivers, millions are adjusting to a new normal of uncertainty, long hours, and diminished prospects. For now, there is no easy path forward.