The Wall Street Journal: Economist Pettis says general tariffs are expected to reduce the U.S. trade deficit and accelerate China's economic rebalancing
In Washington, influential finance professor Pettis said that imposing tariffs on many trade partners may reduce the U.S. trade deficit and accelerate China's economic rebalancing.
According to The Wall Street Journal on July 9, U.S. President Trump officially signed an executive order on July 8, announcing that starting August 1, import goods from 14 countries including Japan and South Korea would be subject to differentiated tariffs of 25%-40%. The tariff rates for Japan, South Korea, and Malaysia are 25%, 36% for Thailand and Cambodia, and as high as 40% for Laos and Myanmar. At the same time, the previously scheduled tariff deadline of July 9 was extended to August 1. This move aims to reduce the U.S. trade deficit, but data shows the opposite effect: the U.S. goods trade deficit surged to $96.6 billion in May, setting a new record for the same period in history, mainly due to a 5.2% drop in exports and weak demand for energy and industrial products. Economists warn that tariff costs will be passed on to American consumers, pushing up prices and increasing the risk of stagflation. According to calculations by the Peterson Institute, about 1.5 percentage points of current U.S. inflation is directly related to tariffs on China.
Economist Michael Pettis pointed out that although the new tariffs will have a short-term impact on China's exports to the U.S. (14.7% of China's total exports in 2024), it may force China's economy to accelerate its "rebalancing," reducing reliance on external demand and strengthening domestic demand-driven growth. Data shows that China's export dependence on the U.S. has been continuously declining from 19.2% in 2018, and in the first quarter of 2025, exports to "Belt and Road" countries increased by 7.2%, accounting for over 50% of trade volume. Pettis emphasized that China's policy focus is shifting towards stimulating domestic demand and industrial upgrading. For example, the density of industrial robots has doubled within four years, and breakthroughs in automated factory technology have become a new growth driver. These structural adjustments will push the economy to rebalance at twice the speed of the past decade. Morgan Stanley analyst Xing Ziqiang added that the Chinese leadership has placed "rebalancing reforms" at the core, and may cut interest rates by 15 basis points and promote tax and fiscal system reforms to release domestic demand potential.
However, the U.S. trade deficit problem cannot be fundamentally solved through tariffs. Scholars from the Global Development Center, Suarez, analyzed that the root cause of the deficit lies in the structural gap between savings and investment. Tariffs can only shift the source of the deficit rather than eliminate the total amount. For example, after imposing tariffs on China in 2018, the U.S. trade deficit with China decreased, but the deficit with Vietnam and Mexico increased by 21% year-on-year, and the overall deficit increased. Pettis further revealed in earlier research that under the context of globalization, trade imbalances are essentially a "class war": surplus countries maintain export competitiveness by suppressing wages and consumption, transferring excess capacity to the U.S., while U.S. financial elites rely on capital inflows to maintain the prosperity of the capital market, forming a "double loss dilemma." This distortion makes the U.S. a "global savings absorber," but at the cost of manufacturing hollowing and debt surge. In 2024, the U.S. national debt reached $36 trillion, and the fiscal deficit reached $1.83 trillion.
Global supply chain reorganization also faces a "pseudo-decoupling" dilemma. Although Vietnam's share of exports to the U.S. has risen from 2% to nearly 4%, its import dependence on China has simultaneously increased, with China still dominating intermediate product supplies. A report from the National Bureau of Economic Research warns that supply chain adjustments only make dependencies "indirect," without substantially weakening China's position. At the same time, BRICS countries are accelerating the promotion of "de-dollarization" and plan to establish a gold-backed trade settlement system to respond to U.S. unilateral tariff coercion. The EU, Germany, Brazil, and others have announced countermeasures against the U.S. The EU's 26 billion euro retaliatory tariff list targeting U.S. steel and aluminum products is about to take effect, and the global trade system is entering a high-volatility cycle.
Pettis concluded: "The endgame of this game will be redefined by the domestic market and technological autonomy. Tariffs are like a double-edged sword - they may briefly narrow the U.S. trade deficit, but their deeper significance lies in forcing China to accelerate economic transformation, ultimately forming a more sustainable new equilibrium."
Original: https://www.toutiao.com/article/1837170279110666/
Statement: This article represents the views of the author.