China’s efforts to boost domestic consumption have taken on newfound importance in the face of unprecedented trade tensions with the United States (US). In 2024, the US was the destination for 14.7 per cent of Chinese exports, and the origin of 6.3 per cent of imports into China.[1] Collectively, US-China trade last year was worth nearly United States dollar (USD) 700 billion,[2] meaning that newly added tariffs, even at reduced levels, will have a significant impact on China’s economy.

Boosting domestic consumption has emerged as one of the primary means to offset the negative impact of tariffs, with a Ministry of Commerce statement released in April highlighting the domestic economy’s role as a ‘strong backstop’ for foreign businesses to cope with external shocks.[3]

However, addressing domestic consumption is an ongoing exercise that was seen as essential to support China’s economy, even before trade tensions with the US increased its urgency. The 2025 Report on the Work of the Government, released before this year’s National People’s Congress, prioritised boosting consumption, listing it as the top major task for 2025.

But even a sizable increase in domestic consumption would be unable to make up for the reduction in US demand, and some are concerned that the most likely interim solution will be to offload excess goods on the European Union (EU).[4] Yet since the EU has shown continued willingness to respond to market distortions through trade defence measures, this solution is unlikely to be viable in the long term. It would also risk further straining the EU-China relationship at a time that many view as ripe for rekindling ties.

While it may seem like China has few options for offsetting a decline in US export demand, increasing consumption is only one part of the equation. Overcapacity and involution, both problems that were present before the increase in US-China trade tensions, must be addressed in tandem with any consumption boost. Without this, the benefits of increased consumption will be cancelled out either partially or wholly by the overproduction of goods. While boosting consumption and addressing overcapacity and involution would have been necessary even in the absence of US-China trade tensions, the current circumstances further raise the stakes.  

While the US has put China in a difficult position, it is important that any actions taken to remedy the situation do not harm China’s relationship with other partners, like the EU. The most effective approach would be to implement balanced measures that tackle fundamental economic issues—both on the supply and demand sides—to restore market equilibrium.

[1] Full text: China’s Position on Some Issues Concerning China-US Economic and Trade Relations, Xinhua, 9^th April 2025, viewed 29^th April 2025, <http://english.scio.gov.cn/whitepapers/2025-04/09/content_117814362_3.html#:~:text=Currently%2C%20the%20US%20is%20China%27s,and%20imports%20for%20the%20year.>

[2] Ibid.

[3] Inter-ministerial Working Mechanism Meeting for Promoting the Integrated Development of Domestic and Foreign Trade and Promoting the National Foreign Trade Superior Products China Tour Held in Beijing, Ministry of Commerce, 19^th April 2025, viewed 6^th May 2025, <https://www.gov.cn/lianbo/bumen/202504/content_7021146.htm>

[4] Shear, M, and Smialek, J, Why Europe Fears a Flood of Cheap Goods From China, The New York Times, 14^th April 2025, viewed 29^th April 2025, <https://www.nytimes.com/2025/04/14/world/europe/europe-china-dumping-tariffs.html>