On April 2, local time, President Trump signed two executive orders concerning the so-called reciprocal tariffs at the White House. These orders announced that the United States would establish a minimum tariff of 10% for trading partners, with even higher tariffs imposed on some specific partners. Professor Lijian SUN, Director of the Financial Research Center at FDDI, was invited by Phoenix TV's Noon News program to provide interpretation of the influences of Trump's tariff 2.0 policy.

Professor Sun highlighted that Trump's Tariff 2.0 exerts a more significant impact compared to previous measures, which is primarily manifested in three dimensions: Firstly, the tariff rates have been markedly elevated, with a cumulative tariff on certain Chinese products reaching as high as 54%, surpassing the levels of other nations and those observed during the trade war of 2018. Secondly, the scale of application is extensively incorporating major surplus economies such as China, the EU, and Vietnam into a differentiated high-tariff system while redefining the minimum tariff structure. Thirdly, there are fundamental alterations to international trade rules. By invoking the International Emergency Economic Powers Act, Trump attributed the trade deficit to economic aggression from other countries, thereby striking the multilateral framework and posing challenges to global industrial chains and financial stability.

On China's response strategy, Professor Sun proposed three countermeasures: First, increase tariffs on US agricultural products and possibly extend to other areas like automobiles and aircraft, with consideration of costs as well. Second, implement measures in multiple fields, such as rare earth export control, anti-monopoly reviews, and expanding the unreliable entities list. Third, promote multilateral cooperation and independent development through initiatives like the Belt and Road and RCEP to counter unilateralism. Meanwhile, the US tariff policy may temporarily seem to protect employment and boost fiscal incomes but will likely lead to stagflation risks, reduce global value chain efficiency, and worsen political and economic instability.

The professor believes that Trump's tariffs will contract global trade, disrupt value chains, and repeat US-Japan trade friction on a larger scale. China should lead the reconstruction of a win-win cooperation ecosystem by leveraging overseas investment, service trade exports, and its large unified market to strengthenits significance on the global supply chain and reduce dependence on the US dollar. Despite of unequal short-term impacts on China and the US, China can accelerate high-quality productivity growth through institutional opening up and internal-external circulation mechanisms, ultimately reversing Trump's policy intentions and promoting global multilateralism.

Translated by Yifan JIA

Full text in Chinese available at:

https://mp.weixin.qq.com/s/BEi11heIBBhUDoJ-pIk8fA