China Trapped in Tariff War: Exports and Imports Decline Simultaneously, Deflation Deepens

China trapped in tariff war. Exports and imports decline. Simultaneously, deflation deepens. As Chinese and U.S. officials were holding another round of trade negotiations in London, Beijing's latest economic data further fueled public concerns. The figures revealed continued weakness in domestic consumption, falling product prices, and an export-import performance far worse than expected. Against this gloomy backdrop, Chinese authorities rushed to announce new support measures, citing the need to address pressing hardships faced by the people. But the effectiveness of these steps remains in doubt. Exports to the U.S. plummet. Imports also slide. On June 9, China's General Administration of Customs released May trade data. Exports to the United States fell by 34.5 percent, Although exports to ASEA and the EU recorded double-digit growth, overall exports in May rose by only 4.8 percent year-on-year in U.S. dollar terms, falling short of the 6 percent market forecast and slowing from April's 8.1 percent growth. At the same time, total imports fell by 3.4 percent, worse than anticipated. Meanwhile, the Consumer Price Index CPI fell for the fourth consecutive month, while the Producer Price Index, PPI, dropped 3.3 percent year-on-year, the sharpest decline in 22 months. Together, these figures signal a broad-based downturn stretching from production to consumption. Expert warning. The world is moving away from China's factories. Economist Sheng Xiaonong argued that the numbers had already been polished, yet the situation remained extremely serious. He noted that May's figures were based on orders placed before new tariffs were imposed. Given the steep drop, he predicted June's exports to the U.S. would look even worse. According to Cheng, the prolonged back-and-forth in the tariff war is accelerating capital flight from China. China's role as the world's factory is fading. Foreign companies are pulling out orders and investment, and this is an irreversible process. Month by month, foreign capital is leaving, orders are shrinking, and the global supply chain is gradually phasing China out. He further stressed that declining imports serve as a leading indicator of weakening exports. When fewer raw materials and energy are brought in, it means factories are running below capacity, labor demand shrinks, and production as well as exports inevitably decline. Double deflation, CPI and PPI both fall? Economist C. Ling added that the simultaneous fall of CPI and PPI is an especially alarming signal. In the past when only CPI was falling, companies could still scrape by with some production profits. Now with PPI also down, corporate earnings are being eroded, triggering more layoffs, rising unemployment, and further deterioration in consumer demand. He explained, Today's deflation is no longer just demand-driven, it has spread to the supply side. This kind of deflation is deeper, more dangerous, and likely to last much longer. New policies, real relief, or mere gestures. In response to the crisis, several Chinese ministries announced easing measures, such as removing household registration, hukou, restrictions for social insurance enrollment, and revising the minimum wage adjustment mechanism. These policies aim to reassure the public, yet experts argue they are largely symbolic. Without a massive fiscal stimulus package to directly boost consumption and restore market confidence, these measures are unlikely to truly ease the daily struggles of hundreds of millions of ordinary citizens. Tightening belts becomes a nationwide reality. Pay cuts, layoffs, and deflation strike all at once. On May 26th in Beijing, a new hutong-style shopping mall opened with lively fanfare, but the bustling facade could not conceal the growing anxiety across society. In recent days, news of pay cuts has surfaced again in cities such as Beijing and Zhejiang. From civil servants and state-owned enterprise staff to employees in the private sector, nearly every household has been forced to tighten their belts. Falling incomes have quickly eroded consumer confidence, and many experts warn that a deeper economic and social crisis is beginning to emerge. Shrinking incomes, heavier burdens. Since early 2025, financial pressure has weighed heavily on families. Mr. Li, a grassroots worker at a central state-owned enterprise in Beijing, told reporters on June 16, I used to earn 6,000 yuan a month. Now it's down to 5,000 and some allowances are gone. My wife works in a private company. Some of her colleagues have had their pay reduced. Others have been told they'll be let go by the end of July. Mr. Ma, employed at another state-owned company in Beijing, confirmed that since 2023, his firm had already undergone two rounds of layoffs and pay reductions. Base salaries have shrunk. Lunch and transport allowances were cancelled. This year, cuts range from 5% to 20%, depending on position. Work that used to be done by two or three people is now pushed onto one person, leaving everyone overwhelmed. Many workers have been forced to seek side jobs. Mr. Wu admitted, now I can only look for outside gigs, but it's not easy. I have to rely on friends to introduce some outsourced design projects. From finance giants to civil servants, no one is spared. Public records show that since early 2025, major groups such as China International Capital Corporation and the China Development Bank have tightened wages. Reports indicate that 27 central financial enterprises are implementing salary caps, setting a maximum of 1 million yuan per year and slashing pay for middle and upper-level managers, a staff member at CICC revealed. Almost the entire building has taken pay cuts. Even junior employees lost 5%, while those earning higher wages were cut much more. In the civil service system, what was once considered symbolic pay cuts has now become substantial reductions. Mr. Zheng from Zhejiang said, a friend of mine is a civil servant. This year, ordinary staff lost 50,000, 60,000 yuan annually. Department heads lost 80,000, 100,000, and higher-level officials up to 150,000. They already cut salaries once before, and now it's happening again. The situation has spread nationwide. A resident of Qingdao, Shandong, reported that a relative working as a township cadre now receives only 70% of his salary, and payments are often delayed. In Guangdong, legal professionals note that police salaries have dropped sharply from 300,000 yuan a year to just 200,000. In Dongguan, a mid-level state bank employee said, our salaries have fallen 30% in two years, and nearly all performance bonuses have been eliminated. Social media, some posts reveal that many counties have been unable to sell land, real estate projects remain stalled, and debts keep piling up. Expenses for official duties have gone unpaid for months, leaving many civil servants to cover work costs out of pocket. Consumption chills, deflation spreads. The direct outcome is a sharp decline in consumer spending power. Mr. Meng, a Shandong resident, explained, small businesses slash prices to survive. Good pork ribs are only 12 yuan a jin, while hog prices have collapsed. Restaurants are slashing prices desperately. This isn't competition anymore, it's dragging each other down. In Beijing's Haidian district, Ms. Su voiced concern. Small supermarkets are cutting prices frantically. I'm afraid in a few months they'll all shut down. She observed changes in everyday consumption, from switching brands to cutting back on dining and entertainment. Now my family eats out only once a week, before it was two or three times. Official data continues to tout stability in the first quarter of 2025, but local budget numbers tell a different story. In Zhejiang, public revenue rose just 0.2% year on year, while tax revenue fell 0.3%. Most of the increase came from fines and other irregular sources. A tightening chain from top to bottom. Economist Wu Qingxie explained, state-owned firms slash wages, private businesses close, small merchants battle each other on price. This is the result of exhausted local finances. The government has no money to care for people, and citizens no longer want to spend. A tightening chain is forming from top to bottom. Wu warned that pay cuts for civil servants are only the beginning. The deeper problem is that people have lost the motivation to consume. Companies have lost the confidence to invest, and society as a whole is shrinking its imagination for the future. In interviews, the recurring key words are involution, deflation, pay cuts, and cautious spending. Wu cautioned, if living frugally were only a slogan, it might be tolerable, but if it becomes the norm, if it turns into having no life at all, then the resilience and confidence of society will truly be pushed to its limits. National Bureau of Statistics reports, growth but party and state push for austerity is China's economy improving or worsening. China's National Bureau of Statistics, NBS, has released its latest economic data, continuing to emphasize that major indicators are on the rise and the economy is improving, yet the actions of the Chinese Communist Party, CCP, and the State Council tell a different story. Recently issued directives require all party and government agencies to take the lead in practicing austerity. So, is China's economy really on the upswing or is it deteriorating? Interpretations vary across society. On Monday, May 19, the NBS announced April's figures, describing steady and relatively rapid growth, highlighting an ongoing positive trend for China's national economy. However, the front page of the People's Daily that same day was dominated not by praise for growth, but by articles stressing the need for thrift, curbing waste, and practicing austerity within party and government institutions. The People's Daily editorial argued that the CCP Central Committee and State Councils newly revised regulations on strict economy and opposition to waste in party and government organs constitute an upgraded bulwark against extravagance. The regulations tighten the rules for government austerity, aiming to ensure limited fiscal funds are spent where most needed. The new version imposes stricter rules on official travel, receptions, and conferences, forbidding overseas study tours, banning mutual banquets funded by public money, and canceling forums, exhibitions, or sporting events unless absolutely necessary. Responsibility for preventing extravagance is emphasized, with serious consequences for those who indulge or permit wasteful practices. Analysis. Austerity directives always appear in times of economic trouble. Independent political scholar Chen Daiyin told our station that similar policies emerged when Xi Jinping first took office as part of his Eight Great Regulations But Chen noted if one reviews CCP history, such directives typically appear during times of economic difficulty. Chen explained, In 1997, during the Asian financial crisis, sweeping fiscal retrenchment occurred. Every time the release of these austerity directives coincided with severe economic strain and tight state finances, it means the coffers are empty, the landlord's pantry is bare. Extravagance within party and government agencies was undermining fiscal operations. To avoid collapse, they had to call for tightening belts. Chen added that the recent China-Latin America forum in Beijing, where Beijing pledged $66 billion, zero cents in credit lines, shows that austerity measures target only local governments and grassroots officials, not the central level. Local governments already tightening belts. Contract teachers cut. Compensation withheld. In reality, local governments had already begun cutting costs before the central government's call. Reports from Henan, Shandong and Guangdong showed delayed or reduced salaries and allowances for teachers and civil servants. Zhengzhou retiree and former teacher Jia Lingmin told our station that grassroots school staff and contract teachers have borne the brunt. School office workers are like minor civil servants. They used to rely on bonuses higher than their base pay, but now they only get the base salary. Performance bonuses are gone. In more remote schools, many contract teachers were recruited. These teachers weren't on permanent staff but were given pensions and paid normally. Now I know of such teachers who have been dismissed outright. Mr. Wei, a lawyer representing demolition cases, revealed that local governments under fiscal strain are even withholding compensation for displaced residents. Governments are diverting funds. Compensation awarded by courts is taken to cover administrative expenses. In urban village redevelopments or large-scale rural demolitions, compensation funds are funneled into government-controlled accounts. Too often, the money never reaches residents because the government embezzles it. Next step in austerity, downsizing the bureaucracy. Economist Cheng Xiangnong, former head of the Comprehensive Research Office of China's Economic System Reform Institute, said local governments have already adopted extreme penny-pinching measures, like cutting bottled water and enforcing double-sided printing. This shows that administrative spending can hardly be cut further. A new central order for austerity, he argued, signals impending layoffs. Cheng explained, austerity is just another way of saying the state lacks financial strength. Local governments have already squeezed out everything they can. The only thing left to cut is personnel. This document is a warning, a coded signal to prepare for staff reductions. But cuts must be subtle, not too visible, so as not to damage the CCP's image. For example, workers at retirement age won't be rehired. Hiring fewer new staff at lower pay allows high-paid older employees to retire early, shifting the cost of salaries from local budgets to the Social Security Fund. Cheng added that while China issued special bonds and allowed debt swaps last year to ease local fiscal pressure, the property crisis remains unresolved. Weak domestic demand, compounded by tariff war impacts, means that local governments in central and western regions are likely to collapse financially first, forcing layoffs to cut spending.