Publisher's Note: The 2025 Tsinghua Wudaokou Global Finance Forum was held on May 17-18. At the opening ceremony, Michael Spence, winner of the 2001 Nobel Prize in Economics, delivered a keynote speech via video link and participated in discussions on issues such as the impact of this trade war on the global economy and the role of AI in finance and economic development. Observer Network, with authorization from the Tsinghua University PBC School of Finance, has compiled and published Michael Spence's remarks.
[Interview/Michael Spence, Compiled by Tang Xiaofu of Observer Network]
Host: I would like to ask you a question first: the temporary suspension of some tariffs between China and the US within 90 days has boosted global stock markets and been widely welcomed by the market. This is certainly a positive development, but only the beginning. I think everyone wants to know what the worst and best scenarios will be after 90 days, and where our future will go?
Michael Spence: We are currently in an era full of uncertainty. The short-term consensus reached by China and the US is undoubtedly a very positive development. No one wants to continue down the path of mutual harm. This agreement may help push both sides toward further negotiations and bring more changes.
Michael Spence, Image courtesy of the 2025 Tsinghua Wudaokou Global Finance Forum
After canceling unreasonable measures, the U.S. side may focus more on direct investment in core areas, which could play a role in the U.S. economic structure and help relevant industries maintain or enhance competitiveness.
The biggest problem with the tariff war that erupted on April 2nd lies in its lack of specificity, almost taxing all fields at once. This approach has had a negative impact on the U.S. economy: consumer confidence has declined, capital spending has decreased, and various adverse signs have already begun to appear.
In fact, the U.S. could have made mid-course adjustments at a more appropriate time, for example by taking more targeted measures in the stock market and fixed-income market (including the bond market). As far as I know, liquidity in the Treasury market was once nearly exhausted. If a liquidity break really occurred, it would trigger a chain reaction affecting the global financial system including China and the U.S., which is clearly not what we want to see.
Now, the Trump administration focuses its negotiations on consultations with major trading partners - especially China. They remain cautious and prefer bilateral negotiation approaches. Although I do not believe that the U.S. side will withdraw from the entire negotiation process, the current lack of mutual respect in this bilateral path cannot be considered a healthy negotiation, and I hope it is not the case.
Moreover, people often overestimate America's influence. The U.S. accounts for about 25% of the global economy, with approximately 13% of its imports coming from China; conversely, about 15% of China's exports are directed to the U.S. These are not small numbers - the peak of China's exports to the U.S. was close to $500 billion. If it were completely interrupted, it would inevitably cause significant damage to both sides, but this data is not groundless speculation.
From a domestic perspective, the U.S. has maintained a relatively open attitude towards trade with countries around the world and various scales of goods for a long time, always attaching great importance to trade relations with various countries. Therefore, when I see research predicting the impact of tariffs on the growth rates of various economies, I am not surprised. Relevant studies show that the U.S. economy is most affected, followed in sequence by China, Canada, Mexico, and finally Europe. Although these impacts cannot be ignored, compared to the U.S., other regions are relatively less affected.
In summary, trade friction undoubtedly brings adverse consequences to the global economy, but the U.S. sometimes misjudges the scale of its own influence. In the current changing situation, all parties should remain prudent, continue to promote the negotiation process, and also prepare for possible financial risks.
Host: The easing of the trade war is a heartening sign. What do you think will be the impact on U.S. monetary policy? After all, this is also a major factor affecting the global economy.
Michael Spence: This is also a major uncertain factor. The Federal Reserve is assessing and evaluating the situation after the 90-day suspension period, and related data will fluctuate repeatedly during this period. However, one thing is certain: the tariff war initiated by the U.S. has put clear upward pressure on domestic prices. Many Americans expect that trade partners will start bilateral negotiations with reciprocal countermeasures - I consider this a reasonable and necessary response.
Unlike most central banks, the Fed has chosen a "wait-and-see" strategy. They are not underestimating the potential weakness of the U.S. economy; instead, they prioritize curbing inflation. Meanwhile, employment data remains robust, and inflation indicators have only flashed a "yellow light." Therefore, the Fed stated that it will continue to observe and make policy adjustments when the situation becomes clearer.
I am more inclined to believe that substantive progress in negotiations is highly likely: if the negotiations proceed smoothly, the cost disruptions caused by tariffs can be alleviated, and the losses in economic growth can gradually be compensated. Then, the Fed can fully respond to changes in the macro environment. In fact, the industry has already felt the pressure of an impending crisis.
After the easing of the tariff war, Chinese shipping to the U.S. surged
Nevertheless, it is still difficult to draw conclusions at this point. We look forward to further consultations returning commercial activities to a relatively normal level in the long term; then, the Fed can restore routine monetary policy operations, focusing more on maintaining economic health and effectively controlling inflation. As seen during the pandemic, whether it is tariff shocks or soaring energy prices, a single price increase does not necessarily lead to persistent inflation; however, if consumer confidence continues to decline and tourism and other service sectors significantly shrink, overall demand will also weaken.
Therefore, another layer of uncertainty brought by the tariff war lies in how much the impact of tariffs and their ripple effects will affect supply and demand. Will demand remain sufficiently strong to offset inflationary pressures? Is there still room for further adjustment? These questions still require observation and response.
Host: What do you think is the impact of the current negotiations on the entire global trade system? From a multilateral and bilateral perspective, what changes do you think the future trade system will undergo?
Michael Spence: The stance of the current U.S. government is also very clear: they have withdrawn from the World Health Organization and basically distanced themselves from the sustainable development agenda - this marks a shift in overall direction. Based on this, I believe three scenarios may occur in the future:
The first scenario: Each country acts independently, repeating the mistakes of the Smoot-Hawley Tariff Act. This extreme protectionist path would bring serious economic disasters, but because all parties are well aware of its destructiveness, the actual likelihood of this happening is not high.
The second scenario: China and the U.S. each form an influence system. This "binary opposition" model is also unlikely to hold. Emerging market countries generally do not want to be forced to choose sides; they wish to maintain close cooperation with China in terms of economy, technology, and trade while continuing to maintain deep ties with Europe and the U.S. in security and business. Therefore, this pattern lacks a sustainable realistic foundation.
The third scenario (which I find most promising): Europe, China, and other major emerging market countries will jointly support a relatively reasonable and feasible multilateral system. The key lies in how to get the U.S. back into this process and adjust policies to return to a multilateral framework at some point. Even if the U.S. is long absent, this cooperative framework still has self-sustaining roots due to the size, strength, and common interests of Europe, China, and other major powers.
Looking back twenty or thirty years ago, the dominant forces on the global stage were mainly developed economies, and the contributions of emerging market countries were just beginning. Now, the share of emerging economies in the global economy has significantly increased. Although the practice process in the future will be complex and changeable, even short-term chaos may occur, the world economy has entered a rapid structural transformation period after being impacted by the pandemic, large-scale supply chain adjustments, and geopolitical tensions. Countries are responding to this challenge in different ways and thus undertaking new tasks and responsibilities.
Any attempt to replicate a more complex and homogeneous new architecture outside the existing system will ultimately fail. Therefore, I do not believe that a "surprise" parallel system will emerge.
Host: Your insights are very insightful. I also want to talk about a topic that is very exciting, which we mentioned two months ago, namely AI. AI technology is changing so fast now, with new developments every day, big deals or new valuation updates happening daily, and this is also the case in China. We even see some new financial products linked to AI. I know that the UK has introduced an insurance product mainly targeting insurance for errors caused by AI tools. These developments about AI are very exciting, and I would also like to hear your views. In your opinion, which AI advancements in the past few months have been the most meaningful or the most exciting?
Michael Spence: Recent advances in AI are indeed both exciting and emotionally complex. First, let me start with the AI Index Report (2025) released by Stanford University.
This year's report is particularly prominent, focusing on the latest achievements and trends in universities and research institutions. In my view, there are several points worth noting: the number of open-source models has grown significantly, closely related to many innovations by DeepSeek and China in this field; the gap between China and the U.S. is rapidly narrowing - although the U.S. still has technological restrictions on China in key hardware such as GPUs, China has achieved significant improvements in the efficiency and performance of large-scale model training; at the same time, a large number of "lightweight" small models are accelerating their emergence, usually trained on large models but offering advantages in usage cost and deployment convenience, and this trend is evident in both China and the U.S.
AI Index Report (2025)
Additionally, I served as co-chair of the advisory committee for the United Nations' 2025 Human Development Report, participating throughout the writing and review of the report. The report was launched last week in Brussels and will begin a global tour to discuss how AI can truly benefit humanity and provide society with more choices. The report acknowledges the benefits brought by technological progress while addressing issues such as digital divides and uneven accessibility, providing balanced and practical policy recommendations for countries and sectors, which deserve our continued attention and efforts to implement its results.
Therefore, simply viewing the global AI competition as a confrontation between two superpowers, China and the U.S., is too narrow-minded - more countries and institutions are participating in it in their own ways, jointly promoting technological progress and industrial applications.
From my personal observations, the deep integration of AI with life sciences is accelerating. AlphaFold won the 2024 Nobel Prize in Chemistry for its breakthroughs in protein structure prediction. Statistics show that more than 2.5 million biologists in over 100 countries are using this technology to develop new drugs, vaccines, and various treatment plans. Meanwhile, China also possesses strong ecosystems and research capabilities in life medicine and biopharmaceuticals, and "AI + Biology" is becoming the next wave.
In fields such as materials science, physics, and weather forecasting, AI will surely shine. For instance, there are reports that Google has developed an algorithm that can accurately predict extreme weather events up to 12 hours in advance, saving many lives and reducing corresponding economic losses in the U.S.
In terms of economics and business, the rapid changes brought by AI are felt daily. Although some demonstrative cases have achieved significant results, if AI applications are concentrated in a few industries or large enterprises, its full potential cannot be unleashed. Only by applying it more broadly and in a more balanced structure can AI achieve its greatest value in social and economic terms.
Finally, the impact of AI on employment and how various industries can benefit from it remains a topic of continuous discussion. The impact of AI on ordinary workers in practice cannot be ignored, and we need to carefully consider countermeasures. Personally, I am excited about the development of AI.
Host: Indeed, it is very gratifying to hear you mention multiple keywords such as accessibility and the development of technology. In China, we also discuss these hot topics, especially the issue of accessibility. Since the emergence of DeepSeek, the accessibility of high-performance AI in China has undergone a huge change, with large, medium, and small enterprises actively embracing new technologies. You just mentioned the diffusion phenomenon of open-source models: a large number of specialized vertical model applications are being widely implemented, helping companies improve their business capabilities. As AI deployment becomes more convenient, its impact will also be more profound.
I would like to ask a third question about the globalization path of business schools and how business schools embrace AI and apply it in teaching and research. As an outstanding professor, what are your thoughts on this?
Michael Spence: My idea is that we can almost allow everyone in the world to access AI services in any language. Currently, everyone can have a digital assistant that can read multiple languages and help us understand and analyze information, so I believe its penetration rate will only increase, greatly expanding people's horizons. We probably remember the early days of the personal computer revolution when the popularity of personal computers and graphical user interfaces (GUI) significantly lowered the threshold for use, initially driven by Apple. In the field of generative AI, we now have very user-friendly interfaces, making it easy for most people (except for illiterates) to use AI, and China is leading in many aspects.
Michael Spence, Image courtesy of the 2025 Tsinghua Wudaokou Global Finance Forum
AI is enhancing its information processing capabilities in fields such as finance, credit, healthcare, and education, and its inclusiveness and universality are also growing stronger, which excites me greatly. But returning to the field of education, I believe we should not only focus on the "negative impacts" of AI. Some even claim that all uses of AI are "cheating." I think this is actually a matter of educational values: education is the process of transforming various materials into knowledge. If students use AI to complete assignments and cite sources appropriately, it is no different from citing literature. People will ask: how do we evaluate students' true learning outcomes? In addition to traditional exams, project presentations and oral defenses can also be used to assess mastery. If projects require the use of computers, it is reasonable for teaching assistants or teachers to offer appropriate assistance.
As for whether students will cheat with AI? Of course, this possibility exists, but it does not mean that we should cancel all exams. In my view, whether assignments are completed is not the most important thing; the key is what students have truly learned. Therefore, traditional assessment methods to test student arguments remain feasible. We should encourage students to use AI responsibly, treating it as an auxiliary tool for learning.
For business schools, it is equally worth considering: how can programs remain closely connected to local practices in the tide of globalization? If they focus solely on the U.S. or Europe, they will overlook rapidly rising economies like Asia. In the future, educational institutions in various countries should deepen their cooperation: domestically, business schools can establish multi-level collaborations with local partners; internationally, through joint projects with institutions in the U.S., Europe, etc., to achieve diverse interconnectivity.
Even if U.S. policies are unpredictable, its appeal as a global center for scientific research and innovation remains undiminished, attracting international scholars and students for exchanges. Similarly, China and Europe will continue to open up more opportunities. From the perspective of business school globalization, I hope that both the U.S. and Europe can maintain close ties with the global economy. As China's economic volume continues to grow and Asian influence rises, business schools should develop toward building good relationships with as many regions as possible.
The current U.S. government is becoming increasingly cautious toward universities, especially immigration policies, which have had a significant impact on academic cooperation and may negatively affect the U.S.'s ability to attract and retain excellent research talent. However, China and Europe have successively extended more invitations for scientific research, and many scholars who once developed in the U.S. are beginning to consider returning home or going to Europe; meanwhile, many international students still choose to stay in the U.S., as its research atmosphere and growth environment still possess strong attraction. This talent flow makes global scientific cooperation more diverse and resilient, creating new opportunities.
In general, these changes, whether at the domestic policy level in the U.S. or at the international relations level, have had profound impacts on online collaboration and scientific exchanges. Senior officials in Europe and China have clearly pointed out that the U.S. is gradually becoming a less reliable partner - this poses a challenge to the global innovation ecosystem and also provides opportunities to reshape the cooperation landscape. Therefore, I believe that major business schools should focus on how to build healthy and sustainable international projects in the new international environment, allowing teachers and students to maintain competitiveness and cooperation spirit in a changing world.
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