Tensions between the United States and China have once again escalated as the two largest economies in the world continue their battle over trade policies. In 2025, President Donald Trump launched a new series of tariffs on Chinese goods in an effort to correct the trade imbalance and protect American manufacturing. According to the White House, China now faces tariffs as high as 245 percent on specific goods, with the overall effective tariff rate reaching around 156 percent.
In response, Beijing retaliated by imposing tariffs of 125 percent on all American goods, adding to previously existing duties. Chinese officials have pledged to stabilize the economy and employment, with the Politburo, led by President Xi Jinping, calling for immediate measures to support those impacted by the tariffs after a high-level meeting last week.
The end of tariff exemptions on low-value shipments has also placed additional pressure on China’s retail and wholesale sectors, further magnifying the impact across the Chinese economy. Goldman Sachs analysts noted that these developments are “exerting employment pressure” and worsening the situation for Chinese businesses dependent on exports.
The Threat to Chinese Jobs
According to a report from Goldman Sachs released on Sunday, as many as 16 million jobs in China could be threatened due to the U.S. tariff hikes. The report explained, “If high U.S.-China tariffs were to persist and Chinese exports were to fall precipitously, labor markets would surely feel the pressure.”
Nearly one-quarter of these 16 million vulnerable jobs are in the wholesale and retail sectors, which are highly sensitive to disruptions in export activities. Industries most at risk include communication equipment, apparel, and chemical products, which Goldman Sachs described as “more vulnerable” than other manufacturing sectors because of their heavy reliance on U.S. markets.
The coastal provinces of Guangdong, Jiangsu, Shandong, Zhejiang, and the city of Shanghai are expected to feel the brunt of the impact. According to S&P Global Ratings, these areas represent about 40 percent of China’s gross domestic product and are among the largest exporters to the United States. S&P Global credit analyst Christopher Yip warned, “Recent tariff hikes at their current levels could have a long-lasting impact on China’s regional economies that trade most actively with the U.S.”
The strain on these regions comes at a particularly difficult time for China. Yip noted that local government debt burdens “have markedly risen due to a prolonged property downturn, large-scale infrastructure spending and tepid tax revenue growth,” making these economies more vulnerable to additional shocks.
The Possibility of Massive U.S. Disinvestment
As trade tensions deepen, another major threat to China’s economy has emerged: the possibility of large-scale American disinvestment. Goldman Sachs warned that in an extreme scenario of financial decoupling, U.S. investors could be forced to withdraw up to $800 billion from Chinese equities.
U.S. institutional investors currently hold about 7 percent of the market capitalization of Chinese companies’ American Depositary Receipts, or ADRs. According to Goldman Sachs analysts led by Kinger Lau, these investors may not be able to continue trading in Hong Kong if companies such as Alibaba Group Holding Ltd. are forcibly delisted from American stock exchanges.
The report detailed that U.S. investors now own approximately $250 billion in Chinese ADRs, representing 26 percent of the total market value. Additionally, they hold around $522 billion in Hong Kong-listed Chinese stocks and $28 billion in A shares listed on mainland China. In the event of financial decoupling, Goldman estimated that it would take only one day for investors to exit A shares, but it could take up to 119 days to exit Hong Kong stocks and 97 days to exit ADRs.
Goldman Sachs stated, “The extreme levels of uncertainty in the global trading system have led to extraordinary volatility in the global capital markets, and concerns about global recession and decoupling risks between the two largest economies globally in other strategic cohorts.”
If a forced delisting occurs, Goldman predicts the value of Chinese ADRs could fall by 9 percent, and the MSCI China Index could drop by 4 percent from current prices. Chinese investors, in response, might be forced to sell around $1.7 trillion in U.S. financial assets, including $370 billion in equities and $1.3 trillion in bonds.
The Broader Impact on China’s Economy
The combined effect of potential job losses and mass disinvestment would have serious consequences for China’s economy. Goldman Sachs emphasized that coastal provinces like Guangdong and Shanghai, which have already been weakened by a property market downturn and high infrastructure spending, could face even deeper economic instability.
Manufacturers in China may attempt to move their production to other countries to avoid U.S. tariffs. Goldman Sachs explained, “Since most other countries are not subject to nearly as high tariffs as China, Chinese exporters may try to re-route goods through other countries.” However, the report noted that Trump’s recently announced “Liberation Day” tariffs are designed to close many of these potential loopholes by targeting rerouted goods.
While this strategy could help China maintain some level of exports to other countries, it would not be enough to fully offset the damage caused by the loss of access to the U.S. market.
Moreover, major financial institutions like JPMorgan Chase have echoed similar warnings. JPMorgan estimated that forced ADR delistings could result in about $11 billion in passive fund outflows globally, adding another layer of instability to global markets already rattled by the ongoing trade war.
Comments by Experts
Christopher Yip of S&P Global Ratings explained that the challenges facing China are layered and serious. “This comes at a time when local government debt burdens have markedly risen due to a prolonged property downturn, large-scale infrastructure spending and tepid tax revenue growth,” he said.
Goldman Sachs analysts pointed out that China’s central bank might resort to cutting policy rates to ease pressures on the labor market, a tactic used during previous economic slowdowns. However, they warned that financial decoupling between the United States and China would lead to “unprecedented uncertainty” and could trigger a global recession if both countries disengage economically on a wide scale.
Despite these risks, Goldman Sachs indicated that global manufacturing could shift to other countries. India, for instance, has been attracting renewed foreign investment and could benefit from companies looking to diversify supply chains away from China. Apple Inc.’s expansion in India serves as a prime example, as the company assembled $22 billion worth of iPhones in India in the last year alone
The warning signs for China’s economy are clear. Between the risk to 16 million jobs and the potential loss of $800 billion in U.S. investment, China faces serious challenges as a result of the escalating trade war with the United States. As tariffs rise and financial tensions mount, China must quickly find ways to stabilize its economy and protect its labor force. Otherwise, the consequences could be devastating not just for China, but for the global economy as well.
