A thrilling 10-day record of the tariff war: What has Trump completely changed?

Source: Finance Mayflower

The global tariff war has been shaking for the 10th day, ushering in the first key turning point.

US President Donald Trump seems to be a little loose. On April 11, Eastern Time, the United States announced that it would no longer impose a 125% "reciprocal tariff" on 20 products originating from China, including chips, laptops, and smartphones. These products need to contain "more than 20% American content." It is speculated that what forced Trump to compromise may be the continuous rise in US Treasury yields.

In recent days, with the US tariffs on China rising to 125% or even 145%, the 10-year US Treasury yield has soared to around 4.5%, and the 30-year US Treasury yield has reached around 4.9%. US Treasury prices continue to fall and yields continue to rise. Market rumors say that hedge funds have begun to sell US Treasury bonds. Some people also believe that it was caused by the weak demand for the recent 3-year US Treasury auction.

However, in an interview on the 11th, Eastern Time, Trump said that there had been "small fluctuations" in the bond market this week, but he quickly resolved the problem and expressed his belief that his economic plan would promote the appreciation of the dollar. On the 12th, Eastern Time, the US government's tone reversed again. In a TV interview, US Commerce Secretary Howard Lutnick said that Trump temporarily exempted the "reciprocal tariffs" on electronic products, but would later introduce special "semiconductor tariffs."

But in any case, higher US bond yields will make it more expensive for the US government to issue debt in the future.

The tariff war ignited by Trump is as ridiculous and capricious as a reality show, causing great erosion and backlash on the US credit, and the "safe haven" status of US bonds has been shaken. When US bond yields continue to rise, US consumers' mortgages, auto loans and credit card fees may also be affected. Even the possibility of triggering a catastrophic financial crisis in the United States cannot be ruled out.

On April 14, Wang Lingjun, deputy director of the General Administration of Customs of China, once again sternly warned that the so-called "reciprocal tariffs" by the United States subvert the existing international economic and trade order, put the interests of the United States above the interests of the international community, and are typical tariff bullying behaviors. They seriously violate the rules of the World Trade Organization, seriously damage the rules-based multilateral trading system, and seriously impact the stability of the global economic order.

As of now, the US government debt has exceeded 36 trillion US dollars. According to the data of the Congressional Budget Office of the United States, in fiscal year 2024, the United States' debt interest expenditure will be as high as 949 billion US dollars, which is more than the military expenditure. If the interest rate of US debt continues to rise, the debt repayment burden of the United States will be even heavier. And by raising tariffs and forcing countries to negotiate, the short-term US Treasury bonds held will be converted into long-term or even century-old US Treasury bonds, commonly known as "writing off the record", which is also considered to be one of the driving forces behind the tariff war.

10%, 10%, 34%, 50%... Tariffs, countermeasures, tariffs again, countermeasures again, in the past 10 days, the tariff game between China and the United States has become increasingly fierce. On April 9, Eastern Time, Trump announced on social media as usual: the tariff on Chinese goods will be directly increased from 104% to 125%. "Effective immediately", this crazy American leader turned a deaf ear to pushing global free trade to the most critical moment in a hundred years. Super globalization has completely fallen into a state of disintegration.

The largest trade protection measure since 1930, the global market was caught off guard

After the Qingming Festival, the news in China changed suddenly every day.

"Yesterday they said wait, today they cancelled it." On April 9, Caijing visited the warehouse of Mebon International Logistics Company in Shekou, Shenzhen. General Manager Tang Lingli recalled that the warehouse was full of parcels in March and it was hard to walk, but now it has loosened up a lot. After the United States announced a 34% tariff increase on April 2, the company rushed to the airport and sent goods to the United States during the Qingming Festival. On April 7, there were still some orders for freight to the United States, and some goods arrived. On April 8, she received a notice that "shipments to the United States are suspended." The next day, the customer told her directly, "The goods are not picked up, and the order is cancelled."

The transaction with the United States was immediately frozen.

April 7 to 9 happened to be the day when the Shenzhen International Toy and Trendy Toy Exhibition was held. In previous years, trendy toy enthusiasts were shoulder to shoulder, and foreign companies and foreign trade merchants went to the Chinese exhibition to purchase and reached many orders. However, a person familiar with the design industry in Shenzhen told Caijing that many toy deals have "fallen apart" in the past few days. "Some orders may have been negotiated, but because of the tariffs, foreign partners stopped placing orders, and many orders were canceled."

On April 8, the United States announced that it would increase the tax rate on small packages of $800 from 30% to 90%, or tax on a per-package basis - an additional $75 per package, which will be increased to $150 per package after June 1. A small cross-border package from China may only have a total value of 20 to 30 US dollars - the huge blow suffered by Chinese e-commerce is self-evident. "We are also confused." Xiaoxun's factory transformed into a cross-border e-commerce company around 2021, and its shipments soon accounted for one-tenth of all foreign trade.

Many merchants were caught off guard and could only wait and see.

Foshan Cheng'an Group Co., Ltd. mainly produces special materials and environmental protection equipment for PCB (printed circuit boards). PCB is used in the fields of computers, communications, consumer electronics, automotive electronics, etc., and is the cornerstone of the modern electronics industry. General Manager Zhou Jianxin told Caijing that although the company has no products directly exported to the United States, the downstream circuit board companies probably export to the United States at a rate of 10%. For example, most of Apple's electronic products purchase components and circuit boards from China. As time goes by, about one to two months, the damage caused by US tariffs will definitely spread to the entire industrial chain. It really "feels" caught off guard.

Trump's new wave of tariff policies covers a wide range and a high range, which is beyond everyone's expectations. On the afternoon of April 2, Eastern Time, Trump held a press conference in the Rose Garden of the White House, announcing that the United States has entered a state of national emergency, bypassing the ruling procedure of the US Congress within 90 days, and imposing a 10% "base tariff" on all countries and regions.

At the same time, the United States announced that it would impose high "personalized" tariffs on some trading partners. Trump called the black day of the global trade shock "Liberation Day." The White House announced that it would impose a 34% tariff on China, which will take effect on April 9. In addition, the United States imposes tariffs ranging from 20% to 49% on trading partners such as the European Union, Vietnam, Taiwan, Japan, India, South Korea, Thailand, Indonesia, and Malaysia. Even Madagascar in Africa has not been spared.

Trump declared that the United States will calculate the combined rates of all tariffs, non-tariff barriers and other forms of tariffs on countries that pose a great threat to the United States. But the final tariff rule is so simple and arbitrary that the equivalent tariff rate chart shown by Trump was determined only three hours before the speech - that is, the US trade deficit divided by the total exports of trading countries to the United States, divided by two.

This is the largest trade protectionist measure in the United States since the Smoot-Hawley Tariff Act of 1930. However, considering Trump’s personal admiration for William McKinley, the "tariff king" of the 19th century and former US President, this is not surprising at all. In his inaugural address, Trump praised McKinley for "making America very rich through tariffs and ingenuity" and changed the highest peak in the United States from Denali back to McKinley in honor of McKinley, who was assassinated in September 1901.

After the high tariffs were announced, the world entered an unprecedented moment of chaos. The stock market was the first to be hit. U.S. stocks plummeted on April 3, with the S&P 500 index falling 4.85%, the largest single-day drop since June 2020; the Nasdaq Composite Index fell 5.99%; and the Dow Jones Industrial Average fell 3.98%. The two-day decline in the U.S. stock market is second only to historical disasters such as the Great Depression, the 2008 financial crisis, and the new crown epidemic. Bitcoin once fell more than $7,000 from when Trump announced the tariffs. Gold hit a record high during the session and then turned down. Three days after the tariff policy, global stock markets evaporated more than $9.5 trillion in market value.

Trade is a concern for all countries. Some countries are seeking peace. Vietnam, facing a reciprocal tariff of up to 46%, has expressed its willingness to reduce tariffs on US goods and increase imports. Some countries are continuing to retaliate. On April 9, EU member states voted to pass the first round of tariff countermeasures against the US, which will impose tariffs of up to 25% on a series of US products; on April 8, Canadian Finance Minister Francois-Philippe Champagne announced that a reciprocal 25% tariff on US cars will take effect on April 9, US Eastern Time. Some countries are also exercising restraint. On April 4, Singaporean Prime Minister Lawrence Wong said in a speech that Singapore has decided not to impose retaliatory tariffs.

The Chinese government stated that if the US insists on its own way, "China will fight to the end." From 12:00 on April 10, China will impose an additional tariff of 84% on all imported goods originating from the United States on the basis of the current applicable tariff rate. Since March 10, China has imposed a 15% tariff on US chicken, wheat, corn, and cotton; and a 10% tariff on sorghum, soybeans, pork, beef, aquatic products, fruits, vegetables, and dairy products. Since February 10, China has imposed a 15% tariff on coal and liquefied natural gas originating from the United States; and a 10% tariff on crude oil, agricultural machinery, large-displacement cars, and pickup trucks.

Day by day, the situation is unpredictable. By the 9th Eastern Time, Trump raised China's tariffs to 125%, and at the same time claimed that more than 75 countries contacted the United States for negotiations and approved a 90-day suspension of measures against these countries, which applies to reciprocal tariffs. During this period, the general tariff will be reduced to 10%, and the suspension will take effect immediately. The tariff war seems to have eased, with the S&P 500 index posting its largest increase since 2008 overnight, and the Nasdaq rising more than 12% in a single day. At the same time, the overall US bond prices have basically stopped the decline in the Asian session on April 9. The 10-year Treasury yield narrowed its gains to 12.6 basis points in late trading.

However, the surge in U.S. assets lasted only one day. On April 10, the U.S. financial market fell again, and the S&P 500 index fell close to triggering the market-wide circuit breaker mechanism. The S&P 500 closed down 188.85 points, and its intraday decline once exceeded 6%, approaching the first-level circuit breaker. The Dow Jones Industrial Average closed down 1014.79 points, and the Nasdaq fell more than 4%. The 20-year and 30-year Treasury yields rose sharply. The U.S. dollar index fell more than 1.8%, the largest single-day drop since 2022.

No matter how it reverses, there is no doubt that after this battle, the glorious and multilateral era of global trade has come to an end. Bridgewater Fund founder Ray Dalio wrote that what is happening is not just about tariffs. What we are witnessing is a typical collapse of the world's major monetary order, political order and geopolitical order. "This kind of collapse will only happen once in a lifetime."

The supply chain has been in a panic for a week, where will the order prices go?

What is more urgent now is the impact of tariffs on China's real economy. A cross-border trading company in Shenzhen exports 100% of its products to American supermarkets. The orders it has received are likely to be cut in half, and the tariff increase to 125% is like a bolt from the blue. A product manager in Guangdong said that foreign trade in the US region is completely paralyzed. Even if the company convened product development, finance and other departments to jointly develop a response plan, the reality is weak. Every day, the rules of the game are changing at any time, and freight forwarders and logistics companies no longer provide clear information.

Shanghai smart electronics company Sotec mainly produces smart glasses and wearable smart devices. Since 2020, it has actively expanded its overseas market, focusing on the United States and Europe. The United States soon accounted for more than half of the company's export share. "Such a sudden and substantial increase in tariffs is considered crazy by both us and American customers." Dong Xiao, general manager in charge of Sotec's export trade, told Caijing that for several orders they have been discussing recently, customers are waiting and not placing orders, and want to wait until the tariff policy is clear before making a decision. Sotec is discussing countermeasures with customers to minimize the impact on both sides.

Faced with tariffs and other impacts, Sotec has had to cut costs this year and laid off 10% of its employees. "We don't want to solve the problem by laying off employees, but rather by expanding new business," Dong Xiao told Caijing.

Even if they do not do business directly with the United States, many companies are facing a cut in export orders. After the tariff war in 2018, a large number of intermediate products of Chinese companies were exported to the European and American markets through Vietnam, Mexico, Indonesia and other countries. Trump's choice to raise tariffs on countries around the world is equivalent to instantly cutting off the source of upstream orders. Customs data show that in 2023, China will export 11.24 trillion yuan of intermediate products, accounting for 47.3% of total exports. Zhou Jianxin's company's PCB products are mainly exported to Southeast Asia, and after being made into circuit boards, they continue to be exported to Europe and the United States. Zhou Jianxin said that at present, Trump's indiscriminate attacks on various countries have little meaning in circumventing tariffs.

In 2024, a subsidiary of Foshan Cheng'an Group Co., Ltd., which is invested in the field of environmental protection, has invested in building a factory in Thailand. Zhou Jianxin said that originally Chinese companies went to Vietnam, Malaysia and other places to build factories not because of the low cost of labor, land and other factors. The comprehensive cost of investing in these countries and regions is 20% higher than investing in China, just to avoid high tariffs for export.

Many companies in Europe and the United States also have unwritten rules requiring Chinese companies in the supply chain to build overseas factories at the same time. "If a company does not have an overseas factory, we will not place orders for 2025-2026, because large companies are worried that if a conflict breaks out between mainland China and Taiwan, it will affect the security of the supply chain." Zhou Jianxin observed that after the tariff war broke out, some companies in Foshan, Jiangsu, Jiangxi and other places that invested in Vietnam adopted a wait-and-see attitude, and the projects originally planned to invest in were suspended or the investment amount was reduced.

If raw materials and key components are imported from the United States, it is difficult for companies to escape the tariff war. Zhou Jianxin told Caijing that the tariff war has affected the import of metal materials. China imposes an 84% tariff on goods imported from the United States, and the cost of imported materials has surged, which will be transmitted to the entire industry in one or two months. The increase in the import cost of raw materials (such as copper clad laminates and electronic chemicals) will compress the profit margins of enterprises. For example, in the past, upstream metal material companies imported higher-purity copper from the United States at about US$9,000 per ton, with a profit of about 5‰. The import tariff of 84% means an additional cost of nearly US$8,000.

The prices of grain and meat have also been significantly affected. "China's beef market has been soaring for the second consecutive day, with an average increase of more than 1,000 yuan per ton." On April 9, Shi Weiqi, rotating chairman of Qianhai Yueshi Supply Chain Management Company, told Caixin that many dealers are now hoarding goods. The company's service network is spread across the country, linking more than 3,000 transportation trunk lines, and is involved in frozen products and animal protein cold chains. Shi Weiqi said that the United States is a major exporter of beef and poultry, and some companies have been included in China's unreliable entity list and banned from exporting. We will of course continue to trade with Australia and Brazil to fill the gap, but if the US supply is cut off, other sources will definitely increase in price. The same is true for soybeans. The market pricing power is in the hands of foreign customers and it rises every year.

Today, even the United States' own big companies have been pushed to the edge of the cliff by Trump. In three days at the end of March, Apple urgently arranged five cargo planes full of iPhones and other products from India and China to the United States to stockpile inventory to meet demand in the coming months. Tesla's stock price has also been hit hard. Musk made a request that Trump withdraw the newly imposed broad tariffs. An article in Reuters said, "Trump's dream of economic self-determination ultimately ended up with the lasting pain of self-driven isolation."

Not only did the stock prices of US companies fluctuate drastically, but the American people also faced price shocks. According to the latest Reuters and Ipsos polls, 73% of respondents in the United States believe that the prices of their daily purchases will rise in the next six months after the tariff policy takes effect. A Chinese in the United States told Caixin that US prices have been rising. Now, with the factor of avian influenza, eggs have risen by 30%, but the price of minced meat was the same as before when I went to see it two days ago. Xinhua News Agency reported that on April 6, more than 1,200 protests and demonstrations broke out in the United States less than 100 days after Trump returned to the White House, represented by the "Hands Off" protest.

Trump's isolationism has undoubtedly attracted criticism. The Federal Reserve lowered its forecast for US economic growth in 2025 from 2.1% to 1.7%. Michael Strain, director of economic policy research at the conservative American Enterprise Institute (AEI), told Caixin that more than 60% of Americans disapprove of Trump's handling of tariffs. In his annual letter to shareholders, Jamie Dimon, CEO of JPMorgan Chase, said that Trump's tariff measures could even trigger a 1970s-style "stagflation" crisis. Olu Sonola, head of U.S. economic research at Fitch Ratings, told Caixin: "Many countries are likely to end up in recession."

The largest trade protection measure since 1930, global markets caught off guard

At first there was worry, then anxiety and panic, until the tariff on China was increased to 125%, things suddenly became a little funny.

On April 10, Eastern Time, the White House issued a statement: The day before, Trump announced on social media that he would impose a 125% import tax on China, which was imposed on top of the 20% tariff imposed on "fentanyl", which is actually 145%. Trump also retained new tariffs on automobiles, steel and aluminum. However, according to data from the National Bureau of Statistics of China, in 2024, the operating income profit margin of China's large-scale industrial enterprises was 5.39%, and in the first two months of this year, it continued to drop to 4.53%.

This means that even if the US tariff is only increased by 5%, it will be an unbearable burden for many Chinese companies, and a tariff increase of 50% is already the highest level. "What's the difference between 145% and 300%?" A foreign trade person told Caixin. Since April 3, China has raised its tariff rates on the United States by 34% and 50% in reciprocal countermeasures. On the 11th, it raised the tariff rate on the United States from 84% to 125%, and pointed out that "if the United States continues to play the tariff numbers game, China will ignore it."

At present, the "tariff nuclear explosion" may have come to an end for the time being.

After the US tariff war was launched, China's Ministry of Commerce, local governments and many domestic e-commerce companies have intensively spoken out to help foreign trade companies affected by tariff issues "export to domestic sales." On April 11 and 12, retail and e-commerce companies such as Hema Fresh, Dingdong Maicai, Ginza Group, and JD.com successively stated that they would support domestic products affected by tariffs.

Despite this, some Chinese companies are ready to deal with a worse situation. Strategic reserves and domestic substitution are one aspect. Pony.ai is a company in Guangzhou that provides autonomous driving travel services. Its core artificial intelligence technology is highly dependent on chips as a guarantee, and Nvidia of the United States is one of its suppliers. The staff in charge of government affairs told Caixin that Pony.ai started to make relevant strategic plans last year, and the chip inventory has been stockpiled in advance, "so it is not affected by this wave."

"We will not use Nvidia's very advanced 7-nanometer chips or high-computing chips, but consumer-grade chips. Nvidia's development ecosystem is very complete, and it is easier to develop by using some tool chains to access our entire virtual world. The computing power of domestic chips is also rising, but the development tools are still incomplete, and the potential investment of enterprises is very large." The above-mentioned staff said that Pony.ai is also evaluating the capabilities of domestic chips such as Horizon and Huawei to see if it can achieve domestic substitution.

On the other hand, it is to use hard-core strength to come up with real and unshakable Chinese products. Lin Rungu is the founder of Shenzhen Titan International Technology Co., Ltd., which was founded in 2021 and officially launched overseas sales of 3D printers, laser engraving machines and other products last year. The United States is a very important market, and technology enthusiasts are the main consumers. "We are still following the original plan. The current tariffs have not affected the overall layout." Lin Rungu told Caijing that they have launched dozens of sku products, with the price of a machine ranging from more than US$100 to more than US$1,000, and a US$3,000 machine will be released later.

"These products are all produced in China, almost not in the United States. Americans still want to buy this machine, so they can only buy it from imports, and the final price is still grafted on consumers." Lin Rungu said that the value and profit margin of such products are also relatively large. According to the logic of such commodities, at present, even in the cross-border e-commerce field that has been hit hard, there is not no way out.

Huafa Cross-border E-commerce Industrial Park is located in Hengqin, Zhuhai, where SHEIN, Vipshop and Yaowang Technology are all stationed. Hu Yubo, executive director of Huafa Park Investment and Development Company, told Caijing that some of the top e-commerce sellers have sales in the US accounting for 40% of their revenue, and they are currently planning to take multiple measures to deal with the impact of tariffs. Most of them plan to continue to reduce costs, but the more urgent thing is to expand their brands overseas. After all, the market cannot be sustained with low customer unit prices. "Good products are not worried about selling now." Diversified markets are also an option. Hu Yubo said that most e-commerce sellers believe that the sales price of products in the US will definitely increase, and demand may decrease. But this will increase while the other will decrease. Companies can switch regions on the Amazon platform, turn to Japan and South Korea, and so on. The e-commerce market base in Portuguese-speaking countries is not large, but the annual growth rate is high and the potential is considerable. The growth rate of Southeast Asian and Middle Eastern markets is also worth exploring. This means that e-commerce companies also need to re-select products, after all, "selling products in the United States is definitely different from selling products in the Middle East." Emerging markets mean hope and vitality. The Middle East, Russia, Africa, Central Asia, South America...are attracting more and more attention. According to the data of the General Administration of Customs, in 2024, the proportion of countries jointly building the "Belt and Road" in China's imports and exports will exceed 50% for the first time, among which foreign exports will increase by 9.6%. In 2024, China and ASEAN will be each other's largest trading partners for five consecutive years. China's exports to Vietnam, Malaysia, Thailand, Indonesia, and Brazil increased by 19%, 17.6%, 15%, 19%, and 23.3% respectively.

Guangwu Youche Technology Co., Ltd. is a used car export company in Guangdong Province. The Middle East, North Africa, Central Asia and Russia are the company's main sales markets. Chairman Gan Honglin gave an example to Caijing that there is a lot of room in emerging markets-the UAE has a permanent population of 11 million. In addition to 1 million citizens, the remaining 10 million people are migrant workers, and there is a great demand for cars for commuting. Guangwu Youche has also set up a subsidiary in the Jebel Ali Free Zone in Dubai, which is the world's largest automobile logistics transit hub. Cars from China can be shipped to Egypt, Iran, Iraq and even Syria through this place.

However, there are still concerns about the transfer of export markets. Experts from the Ministry of Commerce's International Trade and Economic Cooperation Research Institute reminded Caijing that considering that Europe and the United States account for about 30% of China's export share, which is twice that of ASEAN; in addition, the export profits to developed economies are higher, and their final demand is the main force driving global trade. Whether developing economies can continue to digest the transfer of China's export share to developed economies needs to be carefully considered. There are also views that worry that after the impact of tariffs, the US market will gradually close, and a large number of Chinese export products will flood into other countries and regions, putting pressure on Europe, Asia, South America and other places.

Although he hardly gets involved in US business, Gan Honglin is now also worried that the changes in global automobile supply and demand instigated by US tariffs will affect automobile sales and exports in emerging markets. The butterfly effect may also be like this - after the US tariffs increase, countries with large automobile exports will definitely be affected. For example, Japan exports a lot of cars to the United States. After the tariffs increase by 25%, the original export of 2 million cars may become 500,000 cars, and the remaining 1.5 million cars will be released to other countries, intensifying internal competition.

Of course, it is not ruled out that Japanese automakers will move their manufacturing plants to the United States in order to cater to the United States. Low tariffs on spare parts and high tariffs on complete vehicles may hit the target of the US tariff policy - urging companies to build factories in the United States and drive the development of the US manufacturing industry. However, as Gan Honglin observed, manufacturing is not only what Trump wants. Even underdeveloped countries do not want to import too many cars through trade, but hope that Chinese companies will bring the industry over. "He would say that if you sell cars here, you have to drive employment for my country's population and have fixed investment to build factories in the country. There will be such demands." Tariffs have such a huge impact on automobile exports that starting in 2024, Guangwu Youche will have to start exploring overseas production and manufacturing, exporting a small number of KD parts to Africa for assembly. The factory in Ethiopia already has local faces. What does the United States want? It is difficult to have both manufacturing and the US dollar. China's manufacturing value added has ranked first in the world for 14 consecutive years. Today, companies can only go overseas. On April 4, Singapore Prime Minister Lawrence Wong said in a speech that the tariff war marked a major shift in the global order. The era of rule-based globalization and free trade is over. We are entering a new phase, a more arbitrary, protectionist and dangerous phase. It is foreseeable that the world will react strongly to the US tariff measures. The possibility of a full-scale global trade war is increasing. In the 1930s, trade wars eventually led to the outbreak of World War II.

To understand where this tariff war is leading, we first need to understand the logic of the introduction of US tariffs. In the view of some domestic economists, Trump's new tariff policy is intended to achieve four major goals: to solve the US trade imbalance; to increase federal government fiscal revenue, to serve as a tool for diplomatic negotiations, and to protect the US national economic and technological security.

On April 7, Stephen Miran, Trump's tariff policy think tank and White House economic adviser, delivered a speech at the Hudson Institute, detailing the underlying logic of Trump's tariff policy. Stephen Miran said that if other countries want to benefit under the geopolitical and financial umbrella of the United States, "they should do their part and share the responsibility equally." And using the leverage of the United States as the largest consumer market and imposing tariffs can encourage this.

Stephen Milan's reasoning behind this is this -

"When private entities in two different foreign countries trade with each other, due to the United States' position as a reserve provider, this trade is usually denominated in US dollars. The trade requires savings stored in US dollar securities, usually Treasury bonds." Stephen Milan said that the United States' financial dominance comes at a cost. While the demand for dollars does keep US borrowing rates low, it also keeps the currency market distorted. This process has placed an excessive burden on American companies and workers, making American products and labor uncompetitive on the global stage, causing the US manufacturing workforce to fall by more than a third since its peak and its share of world manufacturing to fall by 40%. But in order to ensure security, the United States needs to be able to make things domestically.

During Trump's first presidency, Stephen Milan served as a senior economic policy adviser at the US Treasury Department. As the designer of "reciprocal tariffs", before joining Trump's second administration, Milan wrote a 41-page economic plan called "Mar-a-Lago Agreement", which planned to force other countries to make economic concessions in favor of the United States through means such as tariffs and exchange rate adjustments. This is regarded as the "Bible" of the Trump administration's economic policy, but it has been widely criticized by the mainstream economics community.

In Stephen Milan's view, "the best outcome of this tariff war is that the United States continues to create global peace and prosperity and maintain its position as a reserve provider, while other countries not only share these benefits but also contribute to maintaining these benefits." He said that there are five ways to achieve this: first, accept US tariffs on exported products and do not impose retaliatory tariffs; second, open up the market, stop "unfair and harmful" trade practices, and buy more products from the United States; third, increase defense spending and US arms purchases; fourth, invest in the United States and set up factories in the United States; fifth, donate directly to the US Treasury. However, Li Xunlei, chief economist of Zhongtai Securities, pointed out that the "Triffin paradox" in financial theory holds that it is impossible to maintain the international status of the US dollar and achieve a trade surplus. Trump wants to change the international order established under the leadership of the United States at that time. It is difficult to achieve a trade balance and devalue the US dollar while maintaining the strong status of the US dollar. After Trump was re-elected as president, his policy strategy revolved around MAGA, that is, imposing tariffs on foreign countries to obtain more than US$500 billion in tariff revenue, while revitalizing the US manufacturing industry; internally, through the Department of Government Efficiency (DOGE), streamlining institutions and cutting civil servants to save expenses and improve efficiency. At the same time, policies such as restricting immigration and domestic tax cuts can play a role in encouraging investment and protecting employment. "The problem is that any policy is a double-edged sword. For example, tariffs will inevitably raise prices, and the United States is currently in a stage of high inflation; at the same time, restrictions on immigration will raise wages, further boosting inflation."

In addition, will the US tariff revenue increase significantly after a large increase in tariffs? Li Xunlei pointed out that if exporters are not profitable, they will not export to the United States, and the expected huge tariffs will not be collected. Then the source of tax cuts for enterprises will become a gap. How can tax cuts be used to stimulate the economy? If high tariffs can bring manufacturing back to the United States, how much can it bring back? For example, the salary cost of American manufacturing workers is about 8 to 10 times that of emerging economies. Revitalizing manufacturing requires supporting infrastructure and supply chains, especially for heavy industries with long supply chains, which cannot be built in two or three years.

In fact, if we look back at history, we can find that the United States is not a trade liberal country from beginning to end. Robert Zoellick, former U.S. Deputy Secretary of State and former U.S. Trade Representative, once sorted out the three stages of U.S. trade policy: in the early days of the country, tariffs were levied to increase fiscal revenue. From 1790 to 1860, tariffs provided about 90% of the federal government's revenue. The average U.S. tariff rate rose from about 20% in the early 19th century to 62% after the Tariff Act of 1828.

From the Civil War to the 1930s, the United States began a restrictive trade policy. From 1860 to 1913, tariff revenue still accounted for half of the U.S. government's revenue. It was not until the late 19th century that a few people began to revisit the idea of ​​linking tariffs and trade with international policies. In 1890, the U.S. Congress passed the McKinley Tariff Act, which gave the president the power to impose punitive and retaliatory tariffs on countries that did not provide preferences to U.S. exporters.

The Smoot-Hawley Tariff Act during the Great Depression was a turning point and the prototype of the global tariff war in April 2025. In the 1920s, many industries in the United States were booming, but farmers and agriculture were struggling and called for tariff protection. This eventually led to the Hoover administration passing the Smoot-Hawley Tariff Act in 1930, which listed tariff rates for nearly 3,300 commodities. In 1932, the average tariff in the United States reached 59.1%. The bill also led to counter-retaliation. From 1929 to 1932, the total import and export volume of the United States fell by nearly 70%, with exports falling by 49% and imports falling by 40%.

The third stage of transformation was after 1934, when the United States enacted the Reciprocal Trade Agreements Act (RTAA) and continuously reduced tariffs. After World War II, globalization prevailed and trade protectionism declined, and the United States embarked on the path of insisting on reciprocity and gradual liberalization.

Globalization is in a dilemma. How should countries start trade negotiations?

However, regardless of the changes in the US economy itself, the super globalization that began in the 1970s has also reached a deadlock. At the end of 2019, the WTO Appellate Body was suspended. The WTO's rulings on international trade disputes are no longer enforceable, and it has become more difficult to resolve trade disputes between member countries over bananas, cotton, aircraft, beef, etc. So far, the WTO has maintained and witnessed the prosperity of global trade for more than 20 years, and it has also fallen into a dilemma.

In fact, based on the insights of three scholars, Duke University Professor Gao Bo published an article in 2016 to introduce the causal mechanism of the reversal of globalization. For example, Hungarian economic historian Karl Polanyi believes that globalization is swinging between the two poles of releasing market forces and protecting society. Since the 1970s, with the collapse of the Bretton Woods system and the emergence of two oil crises, neoliberalism, which advocates the release of market forces, has dominated the public policy paradigm of many countries. The world has entered a new era of globalization, which reached its peak in 2008. The outbreak of the financial crisis has put globalization on a downward track.

Gobbe cited the view of Italian scholar Giovanni Arrighi that "fiscal and financial expansion will sooner or later lead to a global capitalist economic crisis, in which the old global economic order is destroyed and a new order is established." Arrighi believes that this cyclical swing of capitalism has appeared three times in the rise and fall of the hegemony of the Netherlands, Britain and the United States.

Xing Ziqiang, chief economist of Morgan Stanley China, pointed out that it is worth noting that in the market environment of stagflationary recession in the United States, the US dollar did not appreciate rapidly after April 2 as in the past, and assumed the role of "safe haven" in the international economy. This marks the end of the previous historical stage and seriously challenges the macro narrative of the United States' "one flower in the sky".

In the past 30 years of globalization, the US trade deficit has continued to expand on the surface, but many of the profits behind these deficits are earned by US multinational companies, which return profits to the United States in the form of capital surpluses and invest in bonds and stocks in US financial accounts, pushing the overall trend of the US dollar to strengthen. This situation may reach its historical peak after 2021.

However, prosperity must decline is the law of the development of things. Xing Ziqiang believes that the globalization of trade, the technological and virtualization of the economy, and the preference for American big business in income distribution have led to a widening gap between the rich and the poor in the United States over the past 20 years. The Trump 1.0 era has also begun. "Biden Economics" also includes many policies such as direct fiscal transfers to middle- and low-income groups, aimed at solving social problems. The policy platform of Trump 2.0 continues the idea of ​​isolated economic protectionism.

At present, the great changes of the century have come so badly, and we are once again unfortunately faced with Trump, who is arbitrary, good at boasting, and does not play by the rules. No one knows whether lowering tariffs and increasing purchases can satisfy Trump. As Stephen Milan said in his speech on April 7, countries that have had trade barriers for many years should not think that the United States will lower tariffs as long as they lower tariffs. The fact is that the president decides how to proceed. "There is only one chef, that is the president, who decides what to do."

Xing Ziqiang predicts that the prospects for China and the United States to reach a package agreement are not optimistic. If a trade agreement is to be reached, it must be a comprehensive, covering all aspects, and a binding agreement that excludes the possibility of subsequent tariff pressure. Otherwise, even if China promises to buy American goods, or a compromise between the two countries in areas such as TikTok is reached, resulting in a temporary reduction in tariffs, the US administration is likely to change its mind overnight and impose tariffs again for other reasons. Xing Ziqiang also pointed out that small economies that are geopolitically dependent on the United States may quickly propose compromise plans to the United States. However, this is not sustainable in the long run. Most Asian exporters have large trade surpluses with the United States. For example, Vietnam's trade surplus with the United States accounts for about 25% of its GDP (gross domestic product). It is almost impossible to achieve rebalancing by increasing import purchases alone. The United States sets tariffs based on the trade surplus of various countries with the United States. In the long run, there is still a risk of repeated increases in tariffs. On April 8, Eastern Time, the Vietnamese delegation led by Vietnamese Deputy Minister Tran Quoc Khanh officially ended negotiations with the Trump team. The Vietnamese side proposed to reduce tariffs on American goods to 0%, increase imports by $20 billion, and strengthen control over transit goods from China. Trump agreed to postpone the 46% tariff on Vietnam for 90 days to July 8, provided that Vietnam fulfills its commitment by April 30, 2025. The impact of tariffs continues to shake the world, and the game between countries continues to intensify.

On April 9, the Canadian government officially implemented a 25% counter-tariff on American-made cars and some parts. Since Trump had announced on April 9, Eastern Time, that the reciprocal tariffs of many countries would be temporarily suspended for 90 days, European Commission President von der Leyen said on the second day that the EU agreed to suspend the countermeasures against US tariffs originally scheduled for the 15th for 90 days. Von der Leyen said that preparations for further countermeasures are still continuing, and if the negotiations are not satisfactory, the EU will take countermeasures.

Faced with Trump's tariff bullying imposed on the world, China did not hesitate to counter, and some foreign people also supported and applauded on social media. At the same time, many countries and regions, including China, have taken action, formed alliances, and found a way out. Xinhua News Agency reported that the Central Peripheral Work Conference was held in Beijing from April 8 to 9. In his speech, President Xi Jinping made clear the goals of neighboring work in the coming period, emphasizing the need to focus on building a community of shared future for neighboring countries and strive to create a new situation in neighboring work.

April 9 news: A few days ago, the China-Japan-South Korea Economic and Trade Ministers' Meeting was held in Seoul, South Korea. The joint statement after the meeting stated that discussions will be held on accelerating the negotiations on the China-Japan-South Korea Free Trade Agreement. On April 8, Chinese Premier Li Qiang had a phone call with European Commission President von der Leyen. Li Qiang said that the two sides should promote a new China-EU high-level dialogue in the fields of strategy, economy and trade, green and digital as soon as possible.

On April 11, a spokesperson for the Chinese Ministry of Foreign Affairs announced that Xi Jinping will pay state visits to Vietnam, Malaysia and Cambodia.

April 10 news: The European Commission and the United Arab Emirates agreed to launch negotiations on a free trade agreement. The negotiations will cover goods, services, investment, etc., and are committed to strengthening cooperation in strategic areas such as renewable energy, green hydrogen and key raw materials. Australia has discussed with Southeast Asian countries, Japan, South Korea, India and the European Union about jointly responding to US tariffs.

Luo Zhiheng, chief economist of Guangdong Securities, suggested that China should build an international community of interests. On the one hand, it should be wary of the United States's efforts to win over other economies to contain China, such as requiring Vietnam, Mexico and other countries to impose tariffs on China in exchange for the reduction of US tariffs; on the other hand, it should strive to win as many allies as possible and establish good relations with other economies.

"Of course, the prerequisite here is that China will become the world's largest domestic demand market through reform and replace the United States as the largest buyer." Luo Zhiheng said that while China implements export diversification to other economies, it should avoid pushing other economies to the opposite side by impacting their domestic markets. It is necessary to "make more friends and fewer enemies to increase bargaining chips with the United States."

China's key propositions to boost its economy, and the best choice

The tariff war launched by the United States will undoubtedly aggravate the global economic recession in 2025. However, looking at the history of the world, from Spain and the Netherlands to the United Kingdom and the United States, and then to the current geopolitical game, every time a storm comes, it is also a key change in the transfer of power among the world's major powers. At this moment, for China, the importance of turning the crisis into an opportunity and stabilizing the domestic economy is self-evident.

In 2024, China's goods trade exports will reach 25 trillion yuan, accounting for about 18.9% of the total GDP. According to the National Bureau of Statistics, in 2024, the contribution rate of net exports of goods and services to economic growth will be 30.3%, driving GDP growth by 1.5 percentage points. Most economists predict that China's economic growth will lose 1.5 to 2 percentage points this year, which is a huge shock. Lian Ping, chief economist of Guangkai Industrial Research Institute, and his team initially estimated that for every 10% increase in US tariffs on China, China's exports may fall by 2%-2.5%; in 2026, the export growth rate may further decline by about 15%. Considering that exports to the United States account for a relatively limited proportion of China's exports, even if the United States imposes higher tariffs on China in the future, the effect will be diminishing marginally. However, if the United States tries its best to block China's exports of raw materials and parts to "trade transit stations" such as ASEAN and Mexico, and a large-scale trade war leads to a slowdown in world economic growth and shrinking demand in various countries, the decline in China's exports may be further amplified. As exports are blocked, there may be a chain reaction in the consumption and investment fields. Lian Ping and his team analyzed that, first, some enterprises have reduced exports, and employees have been laid off or have reduced income; second, a large number of export products will flow to the domestic market, and the market will be oversupplied in a short period of time, and prices will fall, resulting in a decrease in total social retail sales; third, domestic trade enterprises are impacted by the shift of foreign trade enterprises, which may also affect the employment and income of employees. The impact on investment is mainly reflected in: the decline in investment growth in manufacturing due to reduced overseas sales, and the further suppression of investment in real estate due to the decline in income expectations of some residents. If no intervention is made in the changes in exports, consumption and investment, it is not ruled out that China's GDP growth rate may decline by 1.0-1.5 percentage points in 2025 under extreme circumstances.

In this regard, the central government has continuously released positive signals. On April 9, Li Qiang, member of the Standing Committee of the Political Bureau of the CPC Central Committee and Premier of the State Council, presided over a symposium with experts and entrepreneurs on the economic situation. Li Qiang said, "New incremental policies will be introduced in a timely manner according to the situation." External shocks have put certain pressure on the stable operation of my country's economy. We have made full estimates of this and are prepared to deal with various uncertainties. As long as we are determined to do our own things well, we will surely be able to promote the steady and long-term development of China's economy.

In March, the "Government Work Report" has proposed the implementation of "more active and proactive macroeconomic policies". The deficit rate in 2025 is planned to be arranged at about 4%, which is a rare breakthrough. In 2025, the deficit scale is 5.66 trillion yuan, and the general public budget expenditure scale is 29.7 trillion yuan. It is planned to issue 1.3 trillion yuan of ultra-long-term special treasury bonds, 500 billion yuan of special treasury bonds, and 4.4 trillion yuan of local government special bonds. In 2025, the total scale of new government debt will be 11.86 trillion yuan, an increase of 2.9 trillion yuan over the previous year, and the intensity of fiscal expenditure will be significantly increased. In the current extraordinary period, the market expects the policy to be strengthened.

Morgan Stanley expects that China will launch more powerful stimulus policies in the second quarter, including consumption subsidies, support for the science and technology field and other policies. If market confidence deteriorates further, the support policy for real estate may also be further strengthened. At the same time, Xing Ziqiang pointed out that tariffs will first push up domestic prices in the United States, trigger stagflation, and make the Federal Reserve temporarily afraid to cut interest rates. At this time, the United States has limited room to implement stimulus policies. If China can increase new fiscal spending, decisively reduce reserve requirements and interest rates, and actually invest funds to support consumption and the stock market, it will have an advantage in this economic game. But we must race against time.

In the short term, the direction of monetary policy may be the key. Mohammed Apabhai, head of Asian trading strategy at Citibank, accurately predicted Trump's reciprocal tariff rate in a previous report. In this report, he also pointed out that the key to the trade war seems to be Beijing. If the renminbi depreciates and forces the United States into deflation, the trade war will make the United States lose, and the market may force President Trump to return to the negotiating table and the Federal Reserve System to reintroduce quantitative easing. However, if China does not choose to actively devalue, it may "turn victory into defeat" in a limited victory that could have been achieved.

Mohammed said that currency devaluation as a response to tariffs would provide a potential optimal solution for both sides. The United States will gain tariff revenue, and China, Japan and the European Union will not feel a significant economic impact in the case of currency devaluation. The trade deficit will shrink, but the economic impact on trading partners will be limited. This provides a potential window of opportunity for negotiating a solution.

Of course, this is just one person's opinion. And currency devaluation will bring side effects such as rising prices of imported goods and inflation.

In the face of the impact of the tariff war, in the long run, the key to China's economic boost is still domestic demand.

Li Xunlei suggested that another 1 trillion yuan of ultra-long-term special government bonds be added to promote consumption. For example, unemployment subsidies, food stamps for low-income people, and appropriate living allowances for college and technical secondary school graduates who have graduated but have not yet found a job. The leverage ratio of the central government is only about 25%, while the leverage ratio of the US federal government is as high as over 120%, and the fiscal crisis it faces is getting worse. For example, the scale of US Treasury bonds due in three years is 17 trillion US dollars; in the fourth quarter of last year, China, Japan and the United Kingdom significantly reduced their holdings of US debt. "Behind the current tariff war, it is actually a competition of national finances," said Li Xunlei. Xing Ziqiang suggested that China, taking advantage of the once-in-a-century opportunity to reshape the international economic order and even the geopolitical order, implement the "2030 Major Strategy" in response to the era of trade protectionism. By 2030, "three zeros" and "one three zeros" will be achieved. "Three zeros" means that China will reduce tariffs to zero for countries other than the United States; reduce access restrictions on foreign direct investment and private enterprise investment to zero; and reduce industrial subsidies to zero. "One three zeros" means that by 2030, China's consumption will increase by 30%, or $3 trillion. "China is facing a strategic choice: should it continue to adhere to the supply-side and industrial manufacturing model, or should it focus more on domestic consumption and build a more balanced economic and trade pattern through social welfare reform?" Xing Ziqiang analyzed that if China continues to adhere to the supply-side-led export-oriented manufacturing model, in the next few years, European and Asian countries may follow the example of the United States and introduce trade protectionist policies, and global trade may return to the fragmented state before World War II. According to estimates, if China vigorously promotes social security reform and supports the transformation of domestic demand, it will be possible to increase domestic consumption by 30% by 2030 compared with the current level, with an average annual growth rate of about 5.4%. In addition, it is strategic. Xing Ziqiang said that the United States currently imports goods worth about 3 trillion US dollars each year. In the future, its trade protectionist policies will lead to the gradual closure of this part of the market, and there will be a 3 trillion US dollar demand gap in the world. China's current domestic consumption demand is about 10 trillion US dollars a year, accounting for half of its GDP. If domestic consumption increases by 30% in the next five years, it will increase by 3 trillion US dollars, which can fill the global demand gap caused by US trade protectionism and provide market opportunities for countries around the world.

On April 6, Ling Ji, Vice Minister of Commerce and Deputy Representative for International Trade Negotiations, hosted a roundtable meeting of US-funded enterprises. Representatives of more than 20 US-funded enterprises, including Tesla, GE Healthcare, and Medtronic, attended the meeting. Ling Ji said that the Ministry of Commerce will continue to provide protection for foreign-funded enterprises in China, including US-funded enterprises, protect the legitimate rights and interests of foreign-funded enterprises in accordance with the law, and actively promote the resolution of foreign-funded enterprises' problems and demands. China was, is, and will inevitably be an ideal, safe, and promising investment ground for foreign investors.

In late March, the tariff war had not yet completely hit. Michael Hart, President of the American Chamber of Commerce in China, was interviewed by Caijing in Beijing. He said that China is still important to many American companies. "AmCham China members are most concerned about Sino-US relations, which will certainly affect some decisions," said Michael Ho. "But I think, in general, companies invest based on market size. If China's government procurement allows American companies to sell to hospitals, we will see more medical companies active in China. If Chinese consumers continue to buy goods from the United States, American companies will stay here."

Right now, the outcome of the tariff war has not yet been settled, but it is certain that a new international economic order is rising from the ashes.