China’s economy continues to show signs of stress as consumer and producer prices continue to decline, with the nation grappling with the ongoing impacts of the U.S. tariffs.
On Thursday, the National Statistics Bureau reported that China’s consumer price index (CPI) fell 0.1% in March compared to the previous year. This marks the second consecutive month of deflation, following a 0.7% drop in February. While economists had expected a flat reading, the data revealed that the nation’s prices are still struggling to maintain any upward momentum amid the global uncertainty created by President Donald Trump’s tariffs.
Producer Prices Show No Relief
According to CNBC producer prices also continue to fall, dropping 2.5% year on year in March. This marks the 29th consecutive month of declines and the largest drop since November 2024. Economists had anticipated a slightly smaller 2.3% drop. The continued deflation in the production sector indicates deepening challenges for Chinese exporters, who are now fighting for market share in a shrinking global market. These exporters are facing more challenges due to the escalating trade war with the U.S. and a shrinking global demand for Chinese goods.
Tariff Tensions Escalate
The tension between the U.S. and China continues to grow, with President Trump imposing a 125% tariff on Chinese imports and China retaliating with an 84% tariff on U.S. goods. The U.S. tariffs on Chinese imports are causing significant disruption, contributing to the deflationary pressures seen in China. With a weaker currency and the ongoing trade war, the outlook for Chinese exports remains bleak.
Policy Measures and Stimulus Plans
To counter the economic slowdown, Chinese policymakers are focusing on boosting domestic consumption. Premier Li Qiang has named stimulating consumption as the country’s top priority, setting a growth target of around 5% for the year. To achieve this, the government has introduced stimulus measures such as doubling subsidies for consumer trade-ins, which will help boost the sales of mid-range smartphones and home appliances.
However, analysts like Julian Evans-Pritchard from Capital Economics have warned that the push for domestic consumption may not fully offset weaker export performance. He suggested that the overcapacity issue will continue to worsen, further pressuring prices and the broader economy.
China’s Currency Weakens Amid Trade Wars
Following the release of the latest economic data, the yuan has dropped to multi-decade lows. The onshore yuan fell to 7.3469 per dollar, marking its weakest level since 2007. This is seen as a result of continued trade tensions and the impact of Trump’s tariff policies. Meanwhile, the offshore yuan has also seen declines, contributing to the overall pressure on China’s economy.
Global Economic Risks Persist
The ongoing trade war between China and the U.S. has cast a shadow over global markets, and the deflationary pressures in China may exacerbate global economic risks. The U.S. tariff measures continue to disrupt supply chains, and the global economy is facing increased uncertainty as major economies try to navigate the challenges brought on by the trade dispute.
China’s challenges are compounded by the difficult task of shifting from an export-driven growth model to a more sustainable focus on domestic demand. The nation’s ability to address this transition while managing the tariff pressures from the U.S. remains a significant challenge.
Author
Kosta Gushterov
Reporter at Coindoo
Kosta has been a part of the team since 2021 and has solidified his position with a thirst for knowledge, incredible dedication to his work and a “detective-like” mindset. He not only covers a wide range of trending topics, he also creates reviews, PR articles and educational content. His work has also been referenced by other news outlets.
