With high tariffs killing our orders on Chinese goods, the country has been working to help exporters move sales to domestic markets, a move that has the potential to deflate further in the world’s second-largest economy.

Local Chinese government and major companies have expressed support to help tariff exporters redirect their products to the domestic market. JD.com,,,,, Tencent Tiktok's sister app in China Douyin is one of the e-commerce giants that promotes the sale of these goods to Chinese consumers.

Deputy Vice Minister of Commerce Sheng Qiuping described China's vast domestic market as a key buffer for exporters when weathering external shocks in a statement last month, urging local authorities to coordinate efforts to stabilize exports and promote consumption.

"The side effect is a fierce price war between Chinese companies," said Yingke Zhou, senior Chinese economist at Barclays Bank.

For example, JD.com has pledged to help exporters 200 billion yuan ($28 billion) and has set up a dedicated section on its initially targeted cargo platform for U.S. buyers, with discounts up to 55%.

Zhou said a large number of discounted goods intended for use in the U.S. market will also erode the company's profitability, which in turn will make employment weight. Uncertain job prospects and concerns about income stability have led to weak consumer demand.

After hovering above zero in 2023 and 2024, the Consumer Price Index fell into negative territory and fell for two consecutive months in February and March. The producer's price index fell for the 29th straight month, down 2.5% from the same period last year, the biggest drop in four months.

Inflation in China's wholesale prices could deepen from 2.5% in March to 2.8% as the trade war shoots down export orders. “We believe the tariff impact will be the worst this quarter as many exporters have stopped their production and shipping to the United States”

Over the whole year, Goldman Sachs chief Chinese economist Shan Hui predicted China's CPI will drop to 0% from 0.2% year-on-year growth in 2024, while PPI fell 1.6% from 2.2% last year.

“For domestic and other foreign buyers, prices will need to fall to help absorb the excess supply left by U.S. importers,” Shan said. He added that manufacturing capacity may not quickly adapt to “sudden tariff increases”, which could worsen the surplus problem in some industries.

Goldman Sachs predicts that China's true GDP will only grow by 4.0% this year, even if Chinese authorities have set their 2025 growth target at "about 5%.

U.S. President Donald Trump raised tariffs on imported goods to 145% this year, the highest level in a century, prompting Beijing to retaliate with an additional 125% tax. Such high-level tariffs have severely hit trade between the two countries.

Beijing-based Boutique Investment Bank Chanson & Co. Shen Meng said Beijing’s efforts to help exporters unload goods may be more than just a parking measure.

Losses entering the U.S. market have deepened pressure on Chinese exporters, piled up in weak domestic demand, intensified price wars, thin razor profit margins, payment delays and high returns.

“For exporters who can charge higher prices from U.S. consumers, selling in the domestic market in China is just a way to clear unsold inventory and alleviate short-term cash flow pressure,” Shen said. “There is little room for profit.”

Shen said squeezing profits could force some export companies to close stores, while others might choose to lose money just to prevent factories from idling.

As more companies close or expand the operations of the defender, the consequences will spill over into the labor market. Goldman Sachs (Shan) estimates that more than 2% of China's workforce 16 million jobs are involved in the production of combined goods in the United States.

The Trump administration ended a "minimum" exemption last week that allows Chinese e-commerce companies like Shein and Temu to ship low-value parcels to the U.S. without paying tariffs.

"The removal of minimum rules and a decline in cash flow has pushed many small and medium-sized enterprises to bankruptcy," said Wang Dan, director of China at Eurasia Group, a Chinese political risk consulting firm.

Wang said she estimates urban unemployment rates averaged 5.7% this year, higher than the official 5.5% target.

Over the past few years, the surge in exports has helped China offset the obstacles suffered by investment and consumer spending, government financial strain and a downturn in the banking industry.

Nomura chief Chinese economist Ting Lu said in a recent note that the disease in the property sector and the high U.S. taxation means “the economy will face two major resistances at the same time.”

While more and more stimulus requires increasingly powerful stimulus, many economists believe Beijing may wait for signs of economic deterioration before exercising fiscal firepower.

"It is rather the authorities don't see inflation as a crisis, but rather[they]construct low prices as a buffer to support household savings during the economic transition," said Wang of the Eurasian Group.

Asked about the potential impact of increased competition in the Chinese market, Justin Yifu Lin, a professor at Peking University, said Beijing could use fiscal, currency and other targeted policies to promote purchasing power.

"The challenge for American faces is greater than that of China," he told reporters in Mandarin translated on April 21, and Lin is the director of the Institute of New Structural Economics.

He expects the current tariff situation to be resolved soon, but does not share a specific timetable. Although China retains its production capacity, Lin said it will take at least a year or two to reshape manufacturing, meaning American consumers will be hit by higher prices.

- Evelyn Cheng of CNBC contributed to the story.