Beijing – As escalating U.S. tariffs reshape global trade flows, China is rapidly redirecting export-bound goods to its domestic market—a strategic move backed by local governments and major corporations. However, this pivot is now triggering price competition among firms, raising alarms over deepening deflation and its impact on corporate profitability and employment.
Key platforms such as JD.com, Tencent, and Douyin are mobilizing infrastructure and marketing resources to promote the consumption of surplus inventory originally targeted for the U.S. JD.com alone has committed 200 billion yuan (approximately $28 billion) to support exporters, launching exclusive digital storefronts and offering discounts up to 55%.
While this initiative aims to stabilize supply chains and prevent operational paralysis among exporters, analysts warn of significant side effects. “The side effect is a ferocious price war among Chinese firms,” said Yingke Zhou, Senior China Economist at Barclays, noting how intensified domestic competition is eroding margins across multiple sectors.
This price-driven redirection of goods into the domestic economy coincides with fragile consumer sentiment, shaped by job insecurity and muted income growth. According to Goldman Sachs and Morgan Stanley, these conditions are already manifesting in key economic indicators: China’s CPI has dipped into negative territory for two consecutive months, while PPI contracted for the 29th month in March, falling 2.5% year-on-year.
The tariff shock’s short-term implications appear most acute in Q2 2025, as several exporters have suspended production and paused U.S.-bound shipments. Morgan Stanley projects April PPI may drop as far as 2.8%, while Goldman Sachs forecasts CPI for the year to flatten at 0%, with a full-year PPI decline of 1.6%.
China’s Ministry of Commerce has framed the domestic market as a “strategic buffer” in navigating trade turbulence. Vice Minister Sheng Qiuping has urged local authorities to coordinate cross-sector efforts to support exports and drive internal consumption.
For corporate stakeholders, this scenario demands urgent reassessment of domestic pricing models, inventory absorption strategies, and competitive positioning. In the near term, the challenge lies in maintaining operational continuity without compromising financial health—especially in consumer-facing sectors now facing intensified discount pressure.
The broader question facing China Inc. is how to engineer sustainable demand at home, without destabilizing value chains shaped by years of global export orientation.
