China’s economy still dealing with crippling deflation amid rumors of a trade deal with Trump

Source Cryptopolitan

China is stuck in its longest deflation crisis in decades, and the numbers keep getting worse. Prices across the country have been falling for two straight years, and analysts say 2025 could be the third.

If that happens, it’ll be the longest deflationary streak since the 1960s. The latest inflation data shows consumer prices dropped into negative territory in January and February for the first time since 2021.

Core inflation, which excludes food and energy, fell by 0.1% in February, something that has only happened twice in the past 15 years.

Policymakers in Beijing are desperately trying to stop the bleeding, promising more economic support. But their efforts are being overshadowed by an aggressive wave of US tariffs.

Donald Trump, just months into his second term as president, slapped a vindictive 20% tariff on all Chinese imports, which has slowed China’s export growth and hurt businesses that were already struggling.

Beijing responded with its own counter-tariffs on US products, deepening tensions between the world’s two largest economies. There’s uncertainty over whether Trump will follow through on his campaign pledge to raise tariffs to 60%, but if he does, that would cripple China’s exports even more and way faster.

While there are rumors that Trump may be open to a trade deal in the near future, nothing has been confirmed by the president himself yet.

Veteran diplomat Kishore Mahbubani says that Trump, while tough on China publicly, may want a trade deal—something that was less likely under Joe Biden’s administration.

Mahbubani says Trump could reach an agreement if China makes key concessions. “If Trump can get China to open its markets, accept more American exports, and even invest in the US, a win-win trade deal is possible,” he said.

Former US ambassador to Singapore David Adelman also pointed out that China has a strong economic interest in America’s success. The US is still China’s largest trading partner, and while demand for Chinese goods has fallen, American consumers remain crucial to China’s economy.

On the other hand, China’s rising middle class is creating new opportunities for US businesses—but only if trade tensions cool down.

Consumers hold back spending as prices keep dropping

Deflation is hitting Chinese businesses hard because people aren’t spending. When prices fall, consumers wait for even lower prices, making them hesitant to buy cars, appliances, and other big-ticket items. It’s a brutal cycle.

The weaker demand means businesses have to cut prices further, which shrinks profits, reduces hiring, and leads to layoffs. A real estate collapse has made things worse. China’s property market has been in free fall, and with it, consumer confidence.

Home values have dropped too, and that’s pushing people to cut back on spending. Tech and finance workers are also feeling the pressure, as some of the country’s highest-paying jobs are seeing salary cuts and mass layoffs.

Meanwhile, Beijing’s push to expand manufacturing has only led to overproduction, flooding the market with goods that people aren’t buying. The deflation crisis is also making debt more expensive because, in a deflationary environment, the real cost of borrowing rises.

That makes it harder for companies to take out loans, expand, or invest, which could lead to a ton of corporate defaults, putting China’s entire financial system at risk.

In past financial crises, China’s leaders responded with aggressive stimulus measures, injecting cash into the economy, but this time, Beijing is holding back. President Xi Jinping has said that he doesn’t want to rely on debt-driven growth and is instead pushing for economic restructuring.

Infrastructure spending and real estate development, which used to be the go-to strategies, are no longer priorities. Instead, China is betting on advanced technologies and manufacturing—but that strategy isn’t paying off fast enough.

China’s 10-year government bond yield hit an all-time low earlier this year, a sign that market confidence is crumbling. Foreign investors are pulling out because they’re not sure if Beijing will step in to stabilize the economy.

While the US and China fight over trade, other Asian economies are feeling the pressure. On Monday, Singapore’s Deputy Prime Minister Gan Kim Yong pointed out that there’s a “power shift to Asia”, saying that the region’s share of global GDP will rise from 50% today to 60% by 2030.

Adelman described Southeast Asia as a collection of neutral players who have long benefited from US military protection while maintaining strong economic ties with China, which is getting harder as both Trump and Xi demand stronger allegiances.

Some countries are already choosing sides, like South Korea and Vietnam, who both announced 10% tariffs on Chinese steel in February.

If more Asian countries follow the US in restricting Chinese imports, China’s export-driven economy will suffer even more, adding to deflationary pressures.

However, over time, “the U.S. and China will realize that it is in their interest to try and work with regions like Southeast Asia,” rather than forcing them to pick a side, Mahbubani said.

Cryptopolitan Academy: Want to grow your money in 2025? Learn how to do it with DeFi in our upcoming webclass. Save Your Spot

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Natural Gas sinks to pivotal level as China’s demand slumpsNatural Gas price (XNG/USD) edges lower and sinks to $2.56 on Monday, extending its losing streak for the fifth day in a row. The move comes on the back of China cutting its Liquified Natural Gas (LNG) imports after prices rose above $3.0 in June. It
Author  FXStreet
Jul 01, 2024
Natural Gas price (XNG/USD) edges lower and sinks to $2.56 on Monday, extending its losing streak for the fifth day in a row. The move comes on the back of China cutting its Liquified Natural Gas (LNG) imports after prices rose above $3.0 in June. It
placeholder
Bitcoin Outlook 2025As the Bitcoin market continues to mature, its 2025 outlook appears highly favourable, driven by institutional adoption and regulatory developments.
Author  TradingKey
Jan 23, Thu
As the Bitcoin market continues to mature, its 2025 outlook appears highly favourable, driven by institutional adoption and regulatory developments.
placeholder
Ethereum (ETH) Underperforms All Top 5 Major Cryptos in Brutal 2025 DowntrendDespite signs of improving momentum, with RSI climbing and EMA lines hinting at a potential breakout, ETH continues to lag behind competitors like Solana in multiple metrics.
Author  Beincrypto
Apr 23, Wed
Despite signs of improving momentum, with RSI climbing and EMA lines hinting at a potential breakout, ETH continues to lag behind competitors like Solana in multiple metrics.
placeholder
50% of Crypto Coins Fail: Lessons from Ghost Tokens in 2025A recent CoinGecko report revealed some jaw-dropping data. Of the approximately 7 million cryptocurrencies listed on GeckoTerminal since 2021, 3.7 million have subsequently died.
Author  Beincrypto
May 06, Tue
A recent CoinGecko report revealed some jaw-dropping data. Of the approximately 7 million cryptocurrencies listed on GeckoTerminal since 2021, 3.7 million have subsequently died.
placeholder
Analysts Highlight 4 Reasons Why ETH Price Could Rebound Strongly in MayEthereum (ETH) has declined for five consecutive months. However, it enters May with rising optimism.
Author  Beincrypto
May 07, Wed
Ethereum (ETH) has declined for five consecutive months. However, it enters May with rising optimism.
goTop
quote