China’s economy is once again showing how vulnerable it is to the forces of geopolitics and domestic fragility. After a brief spurt of resilience earlier in 2025, the second-largest economy is now cooling sharply. New data suggests that tariffs imposed by Washington and destructive discounting at home are weighing on factory floors, retail outlets, and construction sites alike. The result is a slowdown broad enough to test Beijing’s usually calm playbook of calibrated stimulus.
The contraction in real estate, a sector long serving as China’s growth engine and household wealth anchor, is deepening at an alarming pace. Developers have slashed prices to stay afloat, compressing margins and rattling confidence among consumers already battered by weak job prospects. Urban unemployment, which has ticked higher than expected, reinforces the sense that China’s vaunted model of job-rich expansion is under serious duress.
The pain in exports underscores the bind. Tariffs from the U.S. are forcing Chinese manufacturers to cut prices aggressively, threatening a destructive race to the bottom across major industries. Firms are absorbing blow after blow: shrinking margins, overcapacity, and customers wary of deflationary pressures. What once looked like temporary trade turbulence is hardening into a structural challenge.
Policymakers in Beijing have so far resisted rolling out a major rescue, choosing instead to rely on previously announced measures and smaller bouts of liquidity support. Officials argue that more sweeping stimulus will come only if the slowdown entrenches. But this caution risks looking less like prudence and more like passivity. With investor sentiment fragile and households hesitant to spend, delaying bolder intervention may only deepen the distress.
This moment matters beyond China’s borders. A faltering Chinese economy squeezes Asian supply chains, depresses commodity demand, and jolts global markets that had been counting on steady growth from Beijing to balance out other soft spots. Foreign investors are already recalibrating their exposure to China, wary that uncertainty in policy is compounding the tariff drag.
The challenge for Chinese leadership is to show it can adapt. That means moving past the old habit of relying on real estate booms and infrastructure blitzes, and instead focusing on consumption, productivity gains, and restoring private-sector confidence. The path forward is perilous — but clinging to half-measures in the face of tariffs and structural weaknesses will only erode the credibility of Beijing’s promise that growth remains on track.
China once weathered trade wars by sheer fiscal force. That era may no longer be viable. If tariffs remain, incremental stimulus won’t be enough. Beijing needs to decide whether it will confront the slowdown with a bold reset or risk becoming trapped in a cycle of weakening growth and diminishing options.
