U.S.-China Trade Slump Threatens Economy

Trade between the United States and China has taken a sharp downturn, signaling potential disruptions to supply chains, higher inflation, and widespread job losses. President Donald Trump has recently highlighted ongoing talks about a trade deal between the two largest global economies. However, China has refuted any claims of active negotiations, increasing uncertainty in global markets.

A significant drop in container shipping from China occurred after a surge in late March and early April, as businesses likely rushed to beat impending tariffs. According to Torsten Sløk, chief economist at Apollo, the shipping volume fell off drastically after April 9, when Trump’s full set of tariffs on Chinese imports was implemented. The journey of goods from China to U.S. ports typically takes 20 to 30 days, followed by another one to ten days for distribution. Sløk predicts that by mid-May, U.S. consumers will begin to feel the effects through empty store shelves and reduced inventory, a consequence of the ongoing trade slump.

Currently, U.S. tariffs on Chinese goods stand at an average of 145%, while China has retaliated with a 125% tariff on many American imports. Despite exceptions in sectors like electronics and aviation, both countries have been heavily impacted by these trade barriers.

China remains the U.S.’s third-largest trading partner, importing nearly $440 billion worth of goods in 2024. Simultaneously, the shipping industry has already seen a sharp reduction in demand, as evidenced by a 50% drop in shipping costs since January, according to the Freightos Baltic Index. This downturn has directly affected the logistics and trucking industries, with potential layoffs looming, further dampening the economic outlook.

Sløk also warned that inflation could rise due to the significant reliance on China for certain goods. This will hit small businesses particularly hard. Independent toy, hardware, and clothing stores, which depend on affordable Chinese imports, are especially vulnerable. Smaller firms, lacking the financial flexibility of larger corporations, may struggle to survive amid these disruptions.

“Large businesses have flexible balance sheets and more resources,” Sløk noted. “Small businesses, in contrast, have less liquidity and fewer options to adapt.”

Small businesses, which employed 62 million Americans in 2023, play a crucial role in the U.S. economy. They account for more than 46% of the private-sector workforce and contribute to nearly two-thirds of net job growth from 1995 to 2021. The health of these businesses is vital for the broader economy.

Meanwhile, businesses of all sizes are grappling with the uncertainty caused by conflicting statements from Washington and Beijing. Trump and Treasury Secretary Scott Bessent have suggested that tariffs could be lifted once a new trade agreement is reached. However, China insists it will not negotiate unless the U.S. reverses its “unilateral” actions.

The anxiety surrounding this situation is evident in recent surveys by regional Federal Reserve banks, which report declines in new orders and stagnant capital expenditures. Major companies, including Southwest Airlines, Chipotle, and PepsiCo, have warned that consumer spending is slowing down, with the potential for further economic strain.

As the situation continues to evolve, experts like Sløk remain cautious, predicting that the effects of the trade downturn could worsen before improving.