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As tensions persist between China and the United States, the prospect of continued decoupling raises urgent questions about the sustainability of China’s export-driven growth model. In particular, can domestic consumption meaningfully replace export orders lost from the U.S. if bilateral trade relations fail to stabilize? Emerging data and structural realities suggest the answer is no—at least not in the short to medium term.
The Scale of the Gap
China’s total household consumption reached RMB 51 trillion in 2023 (around $7 trillion), according to the most recent expenditure-based national accounts. While this figure represents a significant part of the economy, it falls short of making up for the loss of export revenues that have long driven China’s manufacturing sectors. U.S.-bound exports, historically valued at more than $500 billion annually, account for a major share of China’s external trade. Replacing this scale of demand with domestic consumption would require a rapid and sustained shift in household spending patterns—something that has proven difficult in practice.
Supply Chain Fragmentation and Inefficiencies
Unlike exports, which are often channeled through centralized, large-scale contracts with multinational buyers, China’s domestic supply chain is more fragmented. Meeting a comparable level of demand from internal consumers involves dealing with numerous small-scale suppliers, varied distribution networks, and inconsistent regional infrastructure. This fragmentation increases costs and reduces the efficiencies that make export markets attractive for producers.
Moreover, adapting existing production systems—built largely for the specifications and quality standards of foreign buyers—to suit local consumer preferences involves redesigning products, retraining staff, and modifying logistics. These adjustments take time and resources and may not yield immediate returns.
Logistical and Institutional Challenges
Reorienting production from exports to domestic sales also involves significant logistical restructuring. Export-focused manufacturers benefit from streamlined ports, global shipping lanes, and predictable foreign demand. Shifting to the domestic market means developing or strengthening internal warehousing, last-mile delivery, localized marketing, and customer service networks—each of which adds layers of complexity and cost.
Institutionally, policies that favor exports—such as tax incentives and subsidies—may not align well with the realities of domestic consumer markets. Without targeted reforms, the shift in focus may struggle to gain traction.
Consumer Behavior and Economic Sentiment
Another obstacle lies in the cautious spending behavior of Chinese households. High savings rates, concerns about job security, and uncertainty over future income continue to suppress domestic consumption growth, especially among middle- and lower-income households. Although authorities have introduced measures to encourage spending—like consumer vouchers and infrastructure investments—these efforts have not yet produced the kind of demand needed to replace foreign buyers.
This hesitation is compounded by an aging population and a still-recovering property sector, both of which dampen consumer confidence. Without significant and sustained policy intervention, household consumption is unlikely to surge at the scale needed to fill the export gap.
Risks of Imbalance and Economic Strain
Should export orders from the U.S. continue to decline without a compensatory rise in domestic demand, Chinese manufacturers could face a growing mismatch between supply and consumption. Overproduction could lead to falling prices and inventory backlogs, while underproduction could strain jobs and output in regions reliant on export industries.
The lack of a common ground between China and the U.S. in trade negotiations not only risks deepening economic decoupling but could also aggravate these internal imbalances. The uncertainty surrounding trade policy further complicates long-term business planning and investment decisions.
Conclusion
Unless trade relations between China and the U.S. stabilize, China’s domestic consumption—while vast and growing—will struggle to fully absorb the economic shock of declining U.S. export orders. Without a clear and sustained policy shift, deeper structural reforms, and improved international cooperation, China may find itself navigating a difficult transition with mounting pressure on growth, employment, and industrial output.
Finding a common ground remains essential—not only to safeguard the benefits of bilateral trade but to ensure a smoother rebalancing of China’s economy in a changing global landscape.
