China Eases Layoff Threat with Tariff Cuts but Job Market Still Struggles

BEIJING, May 16 (Reuters) – Liu Shengzun, a Chinese factory worker, lost two jobs in a single month as U.S. tariffs soared in April, forcing companies in Guangdong to slash production. Though a recent easing of tariffs has brought some relief, Liu has abandoned the industrial sector entirely, returning to farming in his southern hometown.

Last weekend’s Geneva negotiations de-escalated the trade conflict between China and the United States, helping Beijing sidestep the threat of mass unemployment—a risk that could have undermined the Communist Party’s grip on social stability and political legitimacy. Despite this diplomatic success, experts caution that the damage caused by the earlier 145% tariff hike will not vanish overnight. Many of those duties remain steep enough to drag on employment and slow economic momentum.

“This is a short-term win for China,” said one policy adviser under anonymity. “Factories can resume operations, and large-scale layoffs can be avoided, which helps preserve social stability.” Still, many industries continue to face 30% tariffs, adding pressure to already strained supply chains. “A 30% tariff is not sustainable for business in the long run,” the adviser added.

Before the Geneva talks, Beijing was increasingly worried that labor-intensive sectors like furniture and toys were nearing bankruptcy. But the recent tariff rollback has lessened that risk. Lu Zhe, chief economist at Soochow Securities, estimates that the number of threatened jobs has declined from up to 6.9 million to under one million. Alicia Garcia-Herrero of Natixis warned that while triple-digit tariffs could have caused up to 9 million layoffs, the current level still risks 4 to 6 million job losses.

“When tariffs climb that high, businesses stop hiring and start sending workers home,” Garcia-Herrero noted. Even at 30%, she doubts companies will feel secure enough to rehire. “Beijing may see this as a win, but many firms remain skeptical.”

In response, Chinese authorities are expanding public investment to absorb the labor shock. The People’s Bank of China introduced a new lending program last week aimed at funding sectors like elderly care and other service-oriented jobs. According to Jia Kang, president of the China Academy of New Supply-Side Economics, job creation now hinges on government-led spending as corporate investment remains tepid.

Beijing plans to maintain its 4% fiscal deficit target, although higher spending may be necessary if conditions worsen. While precise job loss figures remain unclear, a recent factory activity survey showed a dip in employment in April. Analysts suggest the government is more alarmed by accelerating trends than by one-month declines.

Exporters had already begun downsizing to cope with growing global competition, raising fears of a deflationary spiral. “It’s hard to pin down the number,” said another government adviser. “The economy is already fragile, and the tariff war is adding extra strain.”

Uncertainty over U.S. trade policy under President Donald Trump continues to discourage exporters. Li Qiang, who worked in a firm exporting industrial components, was among 20 employees laid off after losing key U.S. contracts and being outperformed by competitors in Japan. His company eventually folded, and he now drives for a ride-hailing service in Chengdu.