For nearly two decades, analysis of the global economic imbalance has become quite a cliché: the United States must produce more, while China needs to spend more. Even as Beijing rejected Western accusations of industrial overcapacity, the nation’s policymakers have focused on boosting domestic consumption. Still, China’s progress in spurring domestic spending remains debatable. Some economists see China making steady progress in implementing its “dual circulation” strategy, as the country has become less vulnerable to external shocks. According to official data, 85 per cent of China’s 100,000 business entities with export operations also cater to the domestic market, with local sales accounting for about three-quarters of this group’s total sales. Other economists, however, pointed out that China has not reduced its reliance on exports. The nation’s exports have increased amid an extended slump in home sales and construction activity. Among the country’s three growth engines, exports have not lost steam, compared to investment and domestic consumption. Mainland China’s export machine, however, is expected to see a slowdown this year and beyond, following US President Donald Trump’s imposition of higher tariffs against the country. Although China has pledged further opening up to global investment and trade, the external environment could be less accommodating for mainland exporters owing to the high double-digit tariffs imposed by Trump on Chinese imports. Some have argued that the impact of higher tariffs would be manageable because the US accounted for only 14.7 per cent of total Chinese exports in 2024 and just 3 per cent of China’s gross domestic product (GDP) in the same period. But the impact on China could be greater than expected because Trump’s aggressive new tariff regime also covers other developing markets like Vietnam and Cambodia, which have been used by Chinese manufacturers for transshipment of goods in recent years. Trump’s new tariffs appear to mark an end to the era of globalisation, which prompted China to join the World Trade Organization in 2001. Despite a constant stream of international disputes since joining the body, China’s exports have steadily expanded over the past few decades. With the US-led escalation of a global trade war, Beijing’s efforts to boost domestic consumption have become more pressing. At present, Chinese authorities have used certain “supply side” tricks to help boost domestic consumption, but are slow in pushing structural changes that would increase the share of households in national income distribution. China’s household consumption accounted for less than 40 per cent of GDP, which is an extremely low level. The fundamental constraints in increased consumer spending remain the same: low household income and unequal distribution of wealth. The state apparatus, which includes indebted local governments and state-owned enterprises, are rich enough to splash out on massive infrastructure projects. Yet hundreds of millions of Chinese workers earn just US$4 an hour in gig-economy jobs, despite Beijing’s common-prosperity strategy. There remains institutional arrangements that make it difficult for Beijing to narrow the wealth gap across the country. In spite of growing demand for the state to raise the pension of rural residents, the basic level of pensions are still a fraction of the value of those provided in the cities. Statistics published in 2023 by Chengwu county in eastern Shandong province offered a peek into the existing uneven distribution of income. A retired public-sector worker was entitled to a pension of 7,452 yuan (US$1,023) per month. That amount is about three times larger than the 2,326 yuan received as a monthly pension by a retired corporate-sector worker. A rural pensioner, by comparison, receives about 42 times less at just 175 yuan per month. That shows how establishing a more balanced distribution of household wealth in China could potentially help the government’s efforts to increase domestic consumption. It is a long-term initiative that Beijing must pursue with a sense of urgency in the face of disruptions that Trump’s reciprocal tariffs may cause to China’s export sector.