Amidst high market scrutiny of Trump's tariff policies and erratic style, NetEase Finance Think Tank recently interviewed Professor Jun ZHANG, Dean of the School of Economics and Vice Dean of the Fudan Development Institute at Fudan University, to discuss the core contradictions of the U.S. trade system, the underlying predicament of the dollar's hegemony, the complexities of current U.S. trade policy, and its future trajectory.

Professor Zhang believes that since the collapse of the Bretton Woods system, successive U.S. administrations have consistently prioritized maintaining the U.S. dollar's status as the world's reserve currency as a core national strategy. However, maintaining this status has become increasingly difficult because it requires sustained trade deficits. Trump's real intention is to dismantle this system of overspending and over-borrowing in order to address the long-standing massive debt burden accumulated by the United States.

Trump's dissatisfaction with the existing trade system stems not only from political motives but also from a recognition of the predicament the United States faces under the dollar's hegemony. Trump seeks to restructure the global trade system through measures such as increased tariffs, reduce the U.S. trade deficit, and promote the return of manufacturing to achieve his “Make America Great Again” goal. However, this approach is unrealistic. The U.S. trade deficit is not simply a trade policy issue but an inevitable consequence of the dollar's hegemonic system. Trump's attempt to solve this problem through trade protectionism could trigger global trade conflicts and further exacerbate U.S. economic instability.

America's debt problem is also one of its major challenges. If any other single country had such a large debt, its economy would have collapsed long ago. But the United States is different; it can finance its debt by printing dollars. The United States can do this because the dollar is the world's core reserve currency. However, precisely because the dollar is the reserve currency, the United States needs to maintain a long-term trade deficit, as this is the only way to create global demand for the dollar. However, as the U.S. debt grows, the U.S. government's ability to repay its debts will inevitably be questioned, and the risk of debt default will increase. Therefore, this perfect cyclical system is very fragile. Trump's absurd proposals, such as “perpetual zero-coupon bonds,” actually reflect America's helplessness and struggle with its debt problem.

Regarding Sino-U.S. relations, China holds a large amount of U.S. dollar assets and U.S. Treasury bonds, which is an important bargaining chip in China's response to U.S. trade protectionism. However, China will not easily use this “weapon,” as the deterioration of Sino-U.S. trade relations is detrimental to both sides. China will not close the door to dialogue with the United States but will not compromise on core interests, especially on exchange rate issues. China will continue to adhere to expanding domestic demand and reducing dependence on external markets to cope with changes in the external environment.

Translated by Jingyi WEI

Full text in Chinese available at:

https://fddi.fudan.edu.cn/23/30/c18965a729904/page.htm