Analysis: How China Can Cushion Jobs Blow From Trump’s Trade War

By Lu Zhe

The China-U.S. trade row poses risks to employment in China.

First, there could be a direct impact on companies in the export industry, who will face declining orders and a contraction in their business activities.

We could also see an indirect impact. Faced with the pressure of high tariffs, some businesses could relocate production to Southeast Asia or Latin America, where tariffs are lower. At home, declining export orders from manufacturers will impact upstream and downstream sectors, such as raw materials, shipping, logistics and warehousing, affecting employment across the supply chain.

Under an extreme scenario, where all Chinese goods are subject to 145% additional levies for the entire year, China’s export growth — which was 5.9% in dollar terms last year — could be dragged down by 6.6 percentage points, which would affect nearly 6.9 million jobs.

Under a more optimistic scenario where trade tensions ease and the U.S. removes or significantly reduces “reciprocal tariffs” in the first half of the year, China’s export growth might slow by about 1.5 percentage points, which would translate into an impact on about 1.5 million jobs.

A neutral scenario where the U.S. moderately reduces “reciprocal tariffs” in the third quarter might see China’s export growth decelerate by about 3.4 percentage points, with nearly 3.6 million jobs affected.

From an industry perspective, labor-intensive sectors such as toys, textiles and apparel, and furniture would be more vulnerable to “reciprocal tariffs.” The U.S. accounted for a relatively high share of their total exports last year — 32.7%, 24.9% and 25.1%, respectively.

Based on the 2023 annual reports of listed companies, overseas revenue as a proportion of total revenue in industries such as electronics, home appliances, transport and textiles and clothing exceeded 20%, so the impact on these sectors may be more evident.

The impact of the U.S. “reciprocal tariffs” on employment in China also varies by region. Provinces with higher exposure to U.S. trade have greater vulnerability to employment shocks, including Zhejiang, Guangdong, Shanghai, Jiangsu and Fujian, where exports to the U.S. were equivalent to more than 4% of their GDP last year, while those of other provinces were below 3%.

From the point of view of the share of U.S. exports in total exports, Shanxi and Henan provinces exceeded 20%, while some economic powerhouses such as Jiangsu, Guangdong and the financial hub of Shanghai also surpassed 15%.

To hedge the employment risks of the downward pressure on exports, China needs to see the nominal economic growth rate of the five industries with the largest employment elasticity increase from 4.5% in the first quarter of 2025 to 5.6%-7.0%, absorbing another 6.86 million jobs. (Editor’s note: Employment elasticity measures how much employment increases when a sector’s economic output increases.)

The five industries generating the most jobs per million yuan of value-added are: accommodation and catering (22.1), residential services (14.6), water, environmental, and public facilities management (11.4), construction (10.3), and wholesale and retail (9.7). These five sectors have two to five times the job absorption capacity of manufacturing.

Based on the above analysis, we have the following policy recommendations to stabilize employment:

Implement subsidy programs to boost the consumption of services as soon as possible, as these can generate more employment than the current subsidies that only cover durable goods, which mainly drive sales of products such as cars and home appliances. But these sectors have a low capacity to generate jobs compared with service sectors like retail, catering, residential services and entertainment.

We need more-forceful policies to stabilize the real estate sector, especially property investment. According to the 2023 national economic census, employment in construction fell from around 67.6 million in 2018 to about 60.8 million in 2023 — a loss of 6.8 million jobs largely due to falling property investment. Stabilizing investment in the sector will play a significant role in easing employment pressure.

Infrastructure investment is still important, even though it has become somewhat saturated over the past few years. Given its capacity to drive employment, we need to maintain a high growth rate for infrastructure investment during an export downturn, especially in the traditional areas of transport and water conservancy.

We also need to increase support for the export sector by stabilizing the operations of companies along the export chain. This needs to be accompanied by fiscal support to strengthen unemployment insurance to ensure workers affected by the export downturn are covered, and to mitigate the impact of external shocks on domestic demand. Measures such as increasing export tax rebates and promoting domestic sales of goods previously destined for export can also help.

Finally, should China introduce policies to address overcapacity, these need to be matched with stronger policies to expand domestic demand in order to cushion the potential shocks to employment.

Lu Zhe is chief economist of Soochow Securities Co. Ltd.

This analysis has been edited for length and clarity.

Contact translator Qing Na (qingna@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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