Interview: China Needs Long-Term Solutions to Counter Trade War

China aims to counter the impacts of increasing U.S. tariffs by prioritizing domestic consumption and structural reforms. Redirecting exports to the domestic market and implementing trade-in programs that incentivize consumers to purchase specific goods such as electric vehicles and home appliances are short-term strategies, as noted by Shen Jianguang, vice president of JD.com and chief economist at its digital subsidiary. However, Shen emphasized that long-term solutions involve boosting social security, raising incomes, and promoting urbanization to reduce dependence on exports while strengthening domestic demand [para. 1][para. 6].

U.S. tariffs on Chinese goods have become increasingly onerous, with reciprocal tariff rates reaching 125% and some rates hitting 245%. Adding to the hurdles, the U.S. has terminated duty-free treatment for small parcels under $800, subjecting them to 120% tariffs and raising the duty per postal item significantly, thereby pressuring Chinese exporters even further. To combat such challenges, JD.com launched a 200 billion yuan export-to-domestic sales initiative to assist foreign trade firms in adapting to the domestic market [para. 3][para. 4][para. 5].

Some suggest depreciating the yuan as a potential response to make Chinese exports more competitive, though Shen dismissed this approach. He argued that the significant tariffs imposed by the U.S. would render currency depreciation ineffective, as it would hardly offset the costs. Furthermore, such a move could invite accusations of unfair trade practices and lead to capital outflows from China. Shen highlighted that China’s $1 trillion trade surplus makes devaluation an impractical choice [para. 7].

The Chinese government has already ramped up spending to stimulate domestic consumption, announcing a record-high budget deficit of 5.66 trillion yuan for 2025. Resources include a 300 billion yuan allocation from special treasury bonds for trade-in programs, which have temporarily spurred the sales of subsidized goods. However, Shen cautioned that such fiscal measures only offer short-term relief, as consumption is expected to weaken once subsidies end [para. 8][para. 9].

Long-term strategies to sustain domestic demand include increasing household consumption, improving employment rates, and enhancing financial security for families. Measures, such as birth subsidies with financial support and incentives to address China’s declining birth rate, were highlighted as essential reforms. Shen also pointed to urbanization as another key area. Urbanizing migrant workers tends to reduce their savings and increase their consumption, which could be further encouraged through government investments funded by issuing special treasury bonds or monetizing state-owned assets. These reforms, Shen noted, would benefit China’s economy even without the active trade war [para. 10][para. 11][para. 12].

Ultimately, Shen asserted that redirecting exports and providing short-term fiscal subsidies should not overshadow the need for broader structural reforms that promote sustained growth. Policies should address foundational issues like income inequality and population dynamics to create a stronger domestic market and buffer against external trade challenges [para. 9][para. 11][para. 12].