Amid U.S. tariff hikes, how is China cushioning the blow?

As the U.S. government escalates its tariff campaign, disrupting global trade and straining Chinese exports, China, as the world's second-largest economy, is well-positioned to weather the storm, leveraging agile policy tools and the strength of its vast domestic market.

In September last year, CPC leadership – the Political Bureau of the Communist Party of China (CPC) Central Committee – held a meeting to assess the economy and make further arrangements for future economic work.

Since then, authorities have introduced a series of targeted macroeconomic measures, including cuts to the reserve requirement ratio, reductions in mortgage rates, efforts to channel long-term capital into the markets, and the issuance of ultra-long-term special treasury bonds to boost the economy.

These moves have delivered tangible results. According to the National Bureau of Statistics, China's total retail sales rose 4.6 percent year-on-year in the first quarter of 2025, 1.1 percentage points higher than the annual figure in 2024. The manufacturing Purchasing Managers' Index (PMI) climbed to 50.5 percent in March, marking two straight months of expansion, while the services activity index stood at 50.3 percent. Furthermore, the country's GDP grew by 5.4 percent in Q1, surpassing market expectations.

Domestic demand: A powerful buffer

Despite mounting export uncertainties, China's domestic market has provided a critical safety net. Official data shows that in 2024, around 85 percent of the country's export-oriented firms sold products domestically, with domestic sales accounting for roughly 75 percent of their total revenue.

To ease the shift from exports to domestic sales, the government and industry groups have worked to remove regulatory bottlenecks. And major retailers such as JD.com, Freshippo and Yonghui Superstores have also opened fast-track channels to help foreign trade firms sell to Chinese consumers.

One example is Zhuhai-based Jindao Electrics, a beauty appliance company whose products, like hair straighteners and facial steamers, are popular on platforms like Amazon. Following a drop in U.S. orders due to rising tariffs, the company began pivoting to the domestic market and they reached out to JD.com, which helped the firm develop a tailored transition strategy.

"We've provided guaranteed purchase agreements and integrated our platform's on-site traffic, marketing resources, and distribution channels to accelerate their domestic sales push," said Chen Yu, head of JD's beauty appliances business. On April 11, JD.com announced plans to procure over 200 billion yuan (about $27.4 billion) worth of export-to-domestic goods in the coming year to support firms like Jindao Electrics.

According to He Yadong, spokesperson for China's Ministry of Commerce, as of April 23, nine major Chinese e-commerce platforms have opened expedited onboarding channels for export-oriented enterprises with over 600 companies joining these platforms.

Tapping new markets: A strategic rebalance

Beyond bolstering domestic demand, Chinese exporters are also actively pursuing market diversification, especially with Global South countries. The shift has gradually reduced China's dependence on the U.S. market.

Official data shows that the U.S. share of China's total exports has declined significantly, from 19.2 percent in 2018 to 14.7 percent in 2024. By contrast, many U.S. industries, including both consumer products and key manufacturing inputs, are deeply reliant on Chinese imports. For several categories of goods, the U.S. depends on China for over 50 percent of supply, making it difficult to find alternative sources in the short term.

China is now a major trading partner for more than 150 countries and regions. Since 2018, the share of China's exports going to ASEAN has risen from 12.8 percent to 16.4 percent, while exports to Belt and Road countries have jumped from 38.7 percent to 47.8 percent. And, these markets continue to see strong growth.

Yueli Group, a leading Chinese manufacturer of hair dryers, has steadily diversified its markets since 2018 after the U.S. started a trade war with China during Donald Trump's first term in office. According to its marketing director Li Lizhong, U.S. sales now account for less than 20 percent of Yueli's business. Instead, the firm has seen growing demand from Japan, South Korea, the Middle East, and Europe.

Yueli has also expanded its domestic market by working with homegrown brands to design high-quality, affordable, and visually appealing products tailored to Chinese consumers. "Over the past few years, we've seen consistent annual growth of over 30 percent," Li told CMG. "This has helped us effectively reduce the risks of relying too heavily on foreign markets."

He added that China's manufacturing strength lies not only in its factories but also in its complete industrial ecosystem, a competitive advantage that is hard to replicate globally.

Ports, often viewed as a barometer of foreign trade activity, have reflected the resilience of Chinese exports.

According to the Ministry of Transport, in the first quarter of 2025, China's port cargo throughput increased by 3.2 percent year-on-year, with domestic and foreign trade growing by 4.1 percent and 1.4 percent respectively, highlighting the strength of China's dual circulation strategy, which emphasizes internal economic vitality while continuing to engage with global markets.