How Guangzhou and Shenzhen weathered Trump’s tariff storm

When the Trump administration escalated its tariff war in 2025, few places faced a more direct threat than Guangzhou and Shenzhen. As the twin engines of Guangdong province, China’s largest exporting region, both cities suffered blows to their exports to the US. Yet against all expectations, they did not buckle. Instead, Guangzhou staged a remarkable U-shaped recovery, while Shenzhen barely broke stride. The question is not whether they were hurt — they were — but how they turned adversity into an opportunity for structural renewal.

Guangzhou: from trough to U-shaped rebound

Guangzhou’s trajectory tells a story of resilience under extreme pressure. In the first quarter of 2025, the city’s GDP growth plummeted to 3% and hit its trough. It then rebounded, surging to 6% in the first quarter of 2026, outpacing both the national and provincial rates for the first time since 2021. This clear U-curve was underpinned by four interconnected structural adjustments.

Market diversification

The tariffs disrupted US trade relations with many other economies, prompting those countries to reduce their reliance on the US market. Guangzhou seized this shift to accelerate diversification. In 2025, it recorded positive import-export growth with over 190 economies, and the number of trading partners with bilateral trade exceeding 10 billion RMB rose to 33. Trade with the EU surpassed 200 billion RMB, up 19.2%; trade with ASEAN exceeded 200 billion RMB, rising 28%, making ASEAN its largest trading partner ahead of the US. Trade with Belt and Road countries grew by 22.5%.

A key driver was the rapid expansion of cross-border e-commerce, which allowed Guangzhou-based manufacturers to reach overseas consumers and small-to-medium retailers directly via Amazon, AliExpress, or their own websites, bypassing traditional multi-layer intermediaries. This model enables rapid entry into emerging markets such as ASEAN, the Middle East and Latin America.

Meanwhile, Guangzhou did not give up the US market. While the share of trade with the US dropped to 10% of the city’s total foreign trade in 2025, it rebounded to 12% in Q1 2026.

Powerful service sector

Guangzhou’s service-dominated economic structure provides a structural buffer against trade shocks. With the service sector accounting for over 70% of its industrial composition in 2025, robust domestic and global service demand acted as a powerful stabiliser even when manufacturing exports faced pressure.

In 2025, Guangzhou’s total retail sales of consumer goods exceeded 1.1 trillion RMB for the third consecutive year, growing by 5.5% — which is the highest growth rate among first-tier cities. This was driven by both surging domestic consumption and a boom in inbound tourism, and Guangzhou is emerging as a major gateway for foreign visitors entering China.

Industrial upgrading

The steep tariff made low-margin, low-value-added products unprofitable, forcing market resources to shift toward high-tech, high-value sectors and accelerating the elimination of obsolete capacity. Guangzhou’s above-scale industrial enterprises faced significant pressure in 2025, compelling the city’s industrial system to shed its dependence on low-end processing and redirect capital and labour toward integrated circuits, new energy, and low-altitude economy industries. In 2025, exports of the “new three” products (electric vehicles, photovoltaic products, and lithium-ion batteries) reached 26.25 billion RMB, up 68.3%.

Meanwhile, as southern China’s largest commodity distribution centre, Guangzhou evolved from a mere source of goods into a strategic command hub for global trade, attracting multinational corporations to relocate functions such as Asia-Pacific supply chain planning and procurement coordination into the city.

Innovative enterprises

The city is home to 482 specialised and sophisticated “Little Giant” enterprises and 7,175 specialised and sophisticated small and medium enterprises, spanning sectors such as new energy vehicles, AI, integrated circuits and intelligent equipment. These companies constitute the primary force for absorbing and reintegrating traditional production capacity.

In Huangpu district, for example, more than 90 industry chain matchmaking events helped redirect traditional export-supporting capacity to producing components for new energy vehicles, thereby ensuring the internal absorption rather than the loss of factories and jobs. 

Shenzhen: steady growth with structural strength

High concentration of technology-intensive products 

First, the city’s high concentration of technology-intensive products with near-global irreplaceability means tariff costs are largely passed through to overseas importers and end-consumers, rather than absorbed by producers. High-tech products have consistently accounted for around 50% of Shenzhen’s total exports, and no global alternative supply chains yet exist elsewhere, making it difficult for buyers to shift orders. 

Companies like BYD have relocated final assembly operations overseas, such as vehicle production bases in Thailand (150,000 units/year), Brazil (300,000 planned), Hungary (150,000 planned), and Uzbekistan, to circumvent tariffs. Yet their global headquarters, core R&D centres, technical teams, and the critical supply chains for key batteries, motors, and electronic controls remain firmly rooted in Shenzhen. This model ensures that the vast majority of value added from these firms’ global sales is still captured locally. Thus, even under tariff pressure, high-tech exports surged by 26.4% in the first half of 2026. 

Domestic technology adoption

Second, the tariff-driven rise in overseas product costs has created an opportunity for domestic technology adoption. As the city with the most comprehensive electronic information, semiconductor and high-end equipment sectors in China, Shenzhen is the primary beneficiary of the wave of domestic substitution. A large number of local enterprises have experienced explosive growth: in the memory chip sector, DapuStor and Deminli recorded growth rates of 137.87% and 126%, respectively; semiconductor equipment manufacturer Xinkailai launched 31 models of mass-production equipment, achieving a localisation rate of over 90% for core components. This wave of domestic substitution has not only generated incremental market opportunities but also accelerated the pace of technological accumulation among local enterprises.

Third, the city’s strategic emerging industries serve as critical buffer against external shocks. In 2025, the value added of these industries reached 1.67 trillion RMB, accounting for 43% of GDP, with eight clusters (semiconductors and integrated circuits, intelligent connected vehicles, and the low-altitude economy) achieving double-digit growth. Shenzhen has ranked first nationwide in the total output value of above-scale industrial enterprises for seven consecutive years and leads the country in the share of advanced and high-tech manufacturing.

This industrial structure implies that when external tariffs suppress the demand for certain export-oriented finished goods, domestic industrial investment and capacity expansion act as a buffer through stronger internal economic circulation. Data confirm this buffering effect. In 2025, investment in industrial technological upgrading grew by 19.2%, while investment in the information transmission, software, and information technology services sector rose by 67.7%. In the first half of 2026, investment in high-tech industries increased by 27.4%. These investments underpin the stability of the city’s macroeconomy even amid global trade uncertainty.

A collaborative innovation system

Fourth, Shenzhen’s collaborative innovation ecosystem has played a pivotal role in enabling rapid adaptation to shocks. Leading innovative enterprises such as Huawei, Tencent and UBTECH have formed collaborative innovation networks with a vast number of SMEs, allowing the entire industrial system to respond rapidly to external changes as a cohesive whole.

For example, by designating companies like iSoftStone and MGI Tech as authorised component partners, Huawei has enabled numerous domestic AI firms to migrate from Nvidia-based solutions to domestic alternatives within just a few months. Similarly, through joint R&D with upstream suppliers, UBTECH has driven technological upgrades and revenue growth for its partners. Within these networks, the innovation capabilities of individual enterprises are exponentially amplified by network effects, enabling rapid adaptation across the whole network and increasing resilience.

The Trump 2.0 tariff shock was severe, but it did not break Guangzhou or Shenzhen. Guangzhou transformed itself through market diversification, a robust services sector, industrial upgrading, and forward-looking investment. Shenzhen, with its high-tech concentration, globally integrated yet locally anchored corporate structures, vibrant emerging industries, and collaborative innovation ecosystem, not only absorbed the blow but accelerated its ascent up the global value chain. Both cities have demonstrated that external pressure can become a catalyst for deeper structural transformation.

Data in this article is sourced from the Guangzhou and Shenzhen Municipal Statistics Bureaus, the General Administration of Customs of the People’s Republic of China, and official announcements from the Guangdong Provincial Government.

Related: [Big read] From manufacturing giant to AI leader: Can Guangzhou make the leap? | Shenzhen: The city that built China’s tech empire