Beijing – China’s latest response to intensifying U.S. tariffs signals not just an economic shift, but a strategic recalibration with far-reaching geopolitical implications. As Chinese exporters reroute goods originally bound for the U.S. into the domestic market, the world’s second-largest economy faces the risk of spiraling deflation—a consequence that could weaken internal demand and destabilize broader regional markets.
This shift comes as Washington doubles down on trade restrictions, escalating what analysts increasingly describe as a “war of attrition” in global commerce. For Beijing, redirecting exports inward is both a defensive maneuver and a test of resilience for a market still grappling with fragile post-COVID recovery.
E-commerce giants such as JD.com, Tencent, and Douyin are now the frontline actors in this transition, promoting heavy discounts on surplus goods. JD.com has allocated $28 billion to this initiative, creating a dedicated sales channel for inventory once intended for U.S. consumers.
But the economic blowback has been immediate. According to Barclays’ Yingke Zhou, the move has ignited a “ferocious price war” among domestic firms. Combined with ongoing consumer unease and unstable employment prospects, China is entering deflationary territory—with CPI declining in both February and March, and the producer price index falling for a 29th consecutive month.
Morgan Stanley projects the deflation will worsen in April, while Goldman Sachs forecasts China’s CPI to flatline by year-end. The impact on industrial strategy is already evident, with production halted by exporters left without viable overseas markets.
This trade fallout is not occurring in a vacuum. It reflects a deeper shift in global economic alignment, where the U.S.–China rivalry is increasingly framed not only by tariffs but by tech decoupling, investment restrictions, and supply chain reconfigurations.
Beijing has attempted to frame its domestic market as a stabilizing force. Vice Commerce Minister Sheng Qiuping called it a “buffer against external shocks,” urging local authorities to prioritize internal consumption. But the forced redirection of global supply has triggered a level of economic contraction that could, paradoxically, make China more reliant on the very exports it’s trying to replace.
At stake is the viability of China’s dual circulation model—balancing internal consumption with global trade influence. If deflation persists, it may fuel not only domestic unrest but also a recalibration of China’s foreign policy priorities, particularly in ASEAN, Africa, and Latin America, where Beijing seeks to fortify economic ties as counterweights to U.S. pressure.
This unfolding scenario places the global community at a critical juncture: watching whether China can absorb the shock of external pressure without igniting deeper economic and political instability.
