China's industrial sector is keeping a watchful eye on the ongoing trade conflicts
In the heart of China's industrial sector, entrepreneurs like Mike Chai are grappling with the harsh realities of the US-China trade war. Chai, a 53-year-old entrepreneur from Foshan, is struggling to keep his kitchen sink factory afloat. Across the country, workers like Alan Zhang, a textile worker, are finding it increasingly difficult to make ends meet.
Chai, like many other Chinese entrepreneurs, is switching from full-time employees to day laborers to prevent bankruptcy. He aims to reduce labor costs by 30 percent to compete with other Chinese manufacturers. This strategy, however, is at the expense of the domestic population, potentially slowing down the economy significantly.
The trade war is causing disruptions in the economy, symbolizing a hidden deflationary time bomb for China. By mid-2025, about 30.4% of large industrial enterprises in China were operating at a loss, reflecting significant economic pressure on Chinese industry from trade war-related tariffs and disruptions.
The burden of the trade war is being shifted onto workers, whose decreasing purchasing power is putting pressure on consumer sentiment and domestic demand. Underemployment is on the rise in China despite a stable official unemployment rate. Economist Alicia Garcia-Herrero from Natixis states that the trade war model is causing severe consequences for Chinese workers, who are not officially unemployed but given unpaid leave or work fewer hours.
The intensified competition is causing Chinese companies to cut wages and working hours to survive. This has left workers like Alan Zhang struggling to find a job that pays half of his previous wage of 400 yuan per day. In July, Alan worked only 14 days, causing him concern due to his annual kindergarten payment of 10,000 yuan.
Official GDP growth in early 2025 was reported at 5.3%, but analysts question the accuracy, suggesting underlying weakness not fully captured by official statistics. The long-term effects of the US-China trade war on Chinese workers and the domestic economy include increased economic strain on industrial firms, potential growth disruptions, and possible shifts in export markets.
While China is expanding into markets like Australia and Southeast Asia due to US tariffs, the hidden stresses suggest a brittle economy facing structural challenges exacerbated by external tariffs and disrupted global supply chains. These developments collectively point to a more fragile industrial base, pressure on employment and incomes, and a need for China to pivot export strategies and possibly adjust domestic economic policies to mitigate long-term damage from the trade war.
Richard Yarrow, an expert at the Harvard Kennedy School, warns that if wages in manufacturing come under pressure, the entire economy will feel deflationary pressure. The trade war is causing a ripple effect, affecting not just the industrial sector, but the entire economy. Consumer confidence is at a record low, retail sales are weak, and inflation was at zero percent in July, according to Yarrow.
The US-China trade war is a complex issue with far-reaching consequences. As the two economic giants continue to navigate this challenging landscape, it is crucial to consider the impact on the workers and the domestic economy of both countries.
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