US Tariffs : The U.S. recently rolled out a new wave of tariffs, and global markets didn’t take the news lightly. Stocks dropped, oil prices dipped, and investors reacted with a wave of anxiety. But here’s the catch—this isn’t 2018. The economic dynamics have shifted dramatically, especially in China, the main target of these tariffs.
Despite market fears of rising inflation and another trade war, the reality in 2025 is very different. This time, it’s likely Chinese manufacturers—not American consumers—who will feel the real impact.
China in 2025: A Deflationary Export Giant, Not an Economic Powerhouse
Many investors are viewing the situation through an outdated lens. Back in 2018, China’s economy was booming, with strong export growth and pricing power. Today, the landscape has changed. China is grappling with deflation and severe industrial overcapacity.
Prices at the factory gate have been falling for over 10 months, with the Producer Price Index (PPI) deep in negative territory. Consumer inflation is also in the red—China’s CPI fell by 0.7% in February 2025. Despite aggressive government stimulus, domestic demand remains weak, held back by high levels of household and local government debt.
Why Chinese Exporters Will Likely Absorb the Tariff Shock
Given this deflationary backdrop, Chinese manufacturers don’t have much leverage. They can’t afford to lose export orders, even if it means selling at a loss. Factories need to keep running to avoid layoffs and maintain some level of economic stability.
Rather than passing higher prices onto U.S. buyers, Chinese exporters are likely to absorb the cost of tariffs. They’ll do this through slimmer profit margins, price reductions, and possibly currency devaluation. Their priority is clear: maintain volume over profits.
A Quiet Win for the U.S. Treasury
For the U.S., this setup offers a rare advantage. Tariffs mean more revenue flowing into the Treasury without pushing up consumer prices. At a time when the U.S. is juggling rising interest payments and persistent budget deficits, even a modest boost in customs revenue is politically and fiscally helpful.
In effect, this becomes a transfer of economic value from Chinese factories directly to the U.S. government—without causing domestic inflation.
Short-Term Gains for the U.S., But Global Risks Remain
While the U.S. may benefit in the short term, there are longer-term risks. China, under pressure, may start heavily subsidizing its export sector to stay competitive. Emerging markets closely tied to China’s supply chains could also feel the heat.
And let’s not forget, tariffs aren’t a long-term solution. Over time, they could lead to supply chain fragmentation, trade retaliation, and reduced global cooperation. The U.S. might win the short-term optics, but trust and integration in global trade will take a hit.
Still, for now, markets may have overreacted. This isn’t a world overheating with inflation. It’s a world leaning toward disinflation, and in such an environment, tariffs act less like a consumer burden and more like a fiscal tool.
What This Means for India
Interestingly, the shakeup in China might open new doors for India. As global investors look to reduce their exposure to Chinese markets, India stands to gain. With its relatively stable economy, expanding manufacturing capabilities, and stronger alignment with U.S. interests, India could emerge as a prime alternative in global supply chains.
The growing momentum behind the “China-plus-one” strategy could funnel more foreign direct investment (FDI) into India. In the near term, this could lead to stronger capital inflows and increased geopolitical relevance—even if it comes with some short-term market volatility.
Final Thought: Seeing Beyond the Headlines
Markets got the headlines right—a trade conflict is intensifying. But they misread the mechanics. In 2025, imposing tariffs on a deflationary China doesn’t spark inflation. Instead, it puts pressure squarely on Chinese exporters while handing the U.S. a tactical win.
The real question isn’t whether this new tariff wave is risky. It is. The question is when and where those risks will show up.
For now, China is shouldering the cost. And the U.S., at least in the short run, is playing from a position of strength.
