Analysis: What’s Behind the Spike in U.S. Company Layoffs in China?

Several foreign companies have recently been cutting staff in China as they undergo restructuring in response to growing uncertainties linked to U.S. tariffs, the advancement of artificial intelligence (AI), and increasing competition from Chinese firms. The trend reflects broader challenges in the bilateral economic relationship and the evolving Chinese business environment[para. 1].

Amazon.com Inc. is among the latest companies to scale back its operations in China, having recently closed its Amazon Web Services (AWS) AI lab in Shanghai. According to a post by lab scientist Wang Minjie, the closure of AWS's last overseas research institute was driven primarily by shifts in China–U.S. relations[para. 2][para. 3]. Similarly, IBM last year laid off approximately 1,000 employees when it downsized its only remaining research and development unit in China[para. 4]. Such job cuts by foreign companies have become common in recent years, according to Mao Yufei, a labor economics professor, reflecting the deteriorating relationship between the two nations amid ongoing tariff tensions and an increasingly complex regulatory environment[para. 5][para. 6].

The impact has been felt by Chinese employees, such as Xu Yang (a pseudonym), who was laid off along with most of her marketing colleagues at a U.S.-backed software company. Xu attributes the uncertainty to shifting U.S. policy, including concerns that clients could be placed on the U.S. Entity List, subjecting them to trade restrictions and undermining business relationships[para. 7][para. 8][para. 9]. In reaction, some American companies, like Xu's, have reduced their direct operations by delegating responsibilities to general distributors as a way to mitigate risks[para. 9].

According to a recent U.S.-China Business Council (USCBC) annual survey, U.S.-China relations and tariffs have emerged as top concerns for American firms in China, with tariffs jumping to the second most important issue in 2024. Around 40% of the 130 surveyed companies reported being negatively affected by tighter U.S. export controls, particularly in sensitive sectors such as semiconductors, AI, and advanced computing. These controls have led to reduced sales, broken relationships with Chinese clients, and a growing perception that U.S. firms are unreliable suppliers[para. 10][para. 11][para. 12].

Another major challenge for foreign enterprises is the growing competitiveness of Chinese firms, especially in the internet, electronics, new energy, telecommunications, and machinery sectors, driven in part by supportive government policies. Survey results indicate that the share of companies gaining market share in China has dropped from 33% in 2021 to 18% this year. This increased competition, combined with rising operational costs—including higher wages, land prices, and compliance expenses—is prompting some companies to shift labor-intensive operations to lower-cost Southeast Asian countries[para. 13][para. 14][para. 15][para. 16].

Despite the layoffs, foreign companies are not fully withdrawing from China. Many continue to invest, particularly in high-value sectors like advanced manufacturing, research and development, and green technologies. The restructuring is seen as structural adjustment and optimization, rather than a wholesale retreat[para. 17]. Zhao Haiyun, a strategy consultant, notes that traditional manufacturing-based companies are transforming, moving towards innovation, and pruning roles that do not fit their new strategies, often by adopting AI tools to improve efficiency and reduce costs[para. 18][para. 19][para. 20].

Interns contributed research and reporting to the story[para. 22]. Contact details for the reporter and editor are provided for further information[para. 23].