Source: Beijing Daily
[Island侠's Note]
Trump imposed "reciprocal tariffs" on the globe, even leaving Penguin Island unscathed. The absurdity of his tariff calculation formula and the unilateral nature of his bullying actions do not need further elaboration. What is the strategic intent behind this "Seven Injuries Fist" approach? How should we respond? We discussed this with Professor Zheng Yongnian, Dean of the Qianhai International Institute at The Chinese University of Hong Kong (Shenzhen). Let's take a look.
On April 2nd, US President Trump displayed the signed executive order regarding the so-called "reciprocal tariff" at the White House. Photo source: Xinhua News Agency.
1. Island侠: The White House imposing general tariffs globally is no different from starting an economic war with the world. Some comments say this has dropped a "nuclear bomb" on global trade, causing shockwaves in global markets. Does Trump think the whole world will soften towards him and negotiate?
Zheng Yongnian: It's not just an economic war; for many countries, it's even more impactful than war. Why did they take this step? Primarily due to domestic issues in the United States.
The current US government is close to bankruptcy. The White House's view is that to save America, they must implement the "Make America Great Again" strategy, or else America will go bankrupt. Trump's move is almost a last-ditch effort, taking a gamble. With increasing debt and immense repayment pressure, reaching a critical point, they must take risks.
The countries he targets are at least two types he feels can be extorted: first, allies who rely on American security; second, countries highly dependent on the American market.
Of course, there are geopolitical considerations, ultimately targeting China. Therefore, the highest tariffs are mainly on Asian countries, slightly lower for allies and Latin America. The geopolitical factors are very clear.
A corner of the European Commission headquarters building. Photo source: Xinhua News Agency.
2. Island侠: China immediately responded strongly. Europe also stated its intention to retaliate. How do you view Europe's response?
Zheng Yongnian: Behind tariffs lies the contest of national strength. Those without the power to confront the US will compromise; those wanting to continue receiving some benefits from the US will choose compromise as well; those relying on the US for security may have no choice but to cooperate; those with the strength to confront the US will opt for tit-for-tat responses.
If Europe has strong intentions, it has the capability to counterattack. Trump only looks at goods trade but ignores the US gains in service trade, intellectual property, and dollar hegemony. In these areas, Europe is a very important market for the US. However, Europe is divided internally; Germany and France do not fully agree with Italy and the UK's stance, so the US will continue to blackmail, such as threatening "higher taxes for those who resist."
US President Trump. Photo source: Xinhua News Agency.
3. Island侠: What is Trump's real intention in directly "declaring war" on the globe? Is it to raise money to fill fiscal deficits, or like some analysts suggest, to create devaluation through recession to alleviate debt pressure? Or is it a negotiation tactic, such as his statement about making Europe buy $350 billion worth of energy?
Zheng Yongnian: Although Trump appears impulsive, he still has his own logic. For now, it's like giving the US a "shock therapy"; whether it wakes up remains to be seen, but it must first be shocked.
The first layer of meaning behind the tariffs is the most direct: collecting money from foreigners. The "reciprocal tariff" is essentially about making money. Trump admires the late 19th century and early 20th century America the most, when the main source of federal revenue was tariffs, not individual income tax. Trump claims that increased tariffs could bring $1 trillion in revenue to the US government, while US think tanks generally estimate it at $600-$700 billion, which is quite substantial.
The second goal is to bring manufacturing back to the US. Senior officials at the White House said that they want Americans to work in factories screwing and making iPhones. According to their logic, under high tariffs, companies would find it unprofitable to export products to the US from China or other countries, thus choosing to build factories in the US, providing jobs and tax revenues.
The third goal is geographically politically targeting China. China is very clear about this.
Can these goals be achieved? The first one can, as many countries still want to do business with the US. But Trump only sees potential gains without considering possible losses. This might lead to the collapse of dollar hegemony and shrinkage of the US service sector, where the losses might exceed the gains from tariffs. As for the second and third goals, they are much harder to achieve.
Production operation site of a car company in Chongqing. Photo source: Xinhua News Agency.
4. Island侠: The hollowing out of manufacturing is the result of decades, and bringing it back within a short time is almost impossible. TSMC's factory in the US has taken years to build and still struggles to find suitable workers. The labor costs, quality, and skills in the US determine that it cannot be low-cost, and products won't be competitive.
Zheng Yongnian: Exactly. Regarding deindustrialization, we must learn lessons from Britain and the US.
Before the Thatcher Revolution, the UK was a major manufacturing country; it made a wrong strategic judgment, thinking finance was the most profitable, so it shifted focus away from manufacturing. London had a financial city, but the UK lost its manufacturing industry. The US was better off; after the Reagan Revolution, the US still retained its high-end manufacturing, but lost its mid-to-low-end manufacturing because capital flowed freely to set up factories elsewhere. Loss of jobs, taxes, shrinking middle class, and social conflicts all stem from this.
Vance has a viewpoint: innovation must be manifested in manufacturing, then reaching the consumer end. Finance is merely a tool, with the purpose being manufacturing. However, once manufacturing flows out, it's very difficult to bring it back. I've read some data; if a factory set up in Asia returns to the US, the cost could increase more than fivefold. How much tariff would be needed to offset this? And what about labor? Even if the US wants to screw and make iPhones, does it have enough skilled labor?
Trump tried to do this during his first term, and Biden wants to do the same; after eight years, neither succeeded nor will succeed.
His team, including Musk, around the Fourth Industrial Revolution, formulated an equation: (Life Sciences + Artificial Intelligence) * Energy = Modern Industry. But there are problems too. The US deregulates energy, planning to extract large amounts, which Russia and Saudi Arabia immediately oppose by increasing production to drive prices down. Because for these energy-exporting countries, if the largest consumption market, the US, starts producing its own energy, who will buy their oil? And if it's only focused on AI and life sciences, these high-end industries won't solve Trump's problems. So the second goal is hard to achieve.
For us, we must persist in manufacturing and the real economy. Our goal should be to build an industrial system with strong economic resilience, which is the only way for us to remain undefeated in our long-term competition with the US. The current competition between China and the US is about the resilience of the economy.
The White House of the United States. Photo source: CCTV News.
5. Island侠: To some extent, America's trade deficit is closely related to dollar hegemony. Can both goods trade balance and dollar hegemony be achieved simultaneously? Is it possible?
Zheng Yongnian: America's strengths lie in services, intellectual property, and dollar hegemony. Other countries produce goods, while the US acts as the terminal consumer, which is America's comparative advantage. This way, the US gets cheap goods and cycles dollars.
Now Trump focuses on goods trade, but the problem is, if the US produces everything, why would other countries need dollars?
If this continues, it might eventually lead to the collapse of dollar hegemony. Other countries hold dollars to do business with Americans. If they stop doing business, why would they need dollars? Everyone isn't stupid. Germany is already discussing transporting its gold stored in the US back home. What about Japan? What about other countries? Will they dump US Treasury bonds? These are worth observing.
America's problem is clear: the economy leads to social inequality, populism, evolves into political factionalism, and internationalizes domestic problems. America benefited the most from globalization but didn't manage income distribution well, which is a governance issue within the US, not China's problem. American enterprises earned a lot of money globally, but the government couldn't balance capital or manage social distribution, instead offloading costs globally. Trump's "shock therapy" hit hard; whether America can recover remains a big question mark.
6. Island侠: Some analysis suggests that Trump's ultimate goal is to establish a trade circle excluding China, removing China from the supply chain and creating new camps in the trade domain, with the condition of aligning sides in negotiations. Could this happen?
Zheng Yongnian: This is a fantasy and cannot be realized. The US has been working on the "Indo-Pacific Economic Framework" for many years, essentially with this intention, attempting to get neighboring countries to decouple from China and side with the US.
Why hasn't this framework succeeded? Because the US has not opened its market. Both Biden and Trump are like this. Not only haven't they opened up, but they've imposed high tariffs. To attract participation, public goods must be provided, which exactly contradicts what Trump opposes. Then how can others be attracted? Conversely, China is more open, being the world's second-largest economy and second-largest consumer market.
Moreover, will countries definitely listen if forced to pick sides? Countries will hesitate, especially with only a four-year term; perhaps they'll wait it out. Some countries are waiting, as a White House term lasts four years, and if not, maybe eight, enduring it until the end.
7. Island侠: Domestic factors in the US cannot be ignored. The stock market has plummeted, with social security and pension funds involved, and Musk criticized Navarro, calling him "dumber than a bag of bricks." There seems to be no consensus within the administration.
Zheng Yongnian: China faces not a shortage issue but rather considers overproduction, pondering where to sell goods besides the US. But the US has bigger problems; it doesn't produce mid-to-low-end goods, which are closely related to people's daily lives, and the US will soon face inflation.
In terms of constraints, especially inflation in the US, the lack of essential goods production will accelerate divisions within the governing team. There are discordant voices within the Republican Party, and Democrats will also come out against it. How much can American citizens endure? How much patience do they have? Obama has already started appealing to young students to oppose Trump with concrete actions. If inflation is too high and domestic control fails, when a crisis arises, the Democratic Party will surely gain momentum.
8. Island侠: Trump's first demand on China hit a brick wall, so the White House continues to threaten China. How should we view the subsequent game? And how should China respond?
Zheng Yongnian: The tariff dispute has its limits. Once tariffs reach 60-70%, adding them to 500% makes no difference; it's impossible to do business, meaning a complete severance of ties.
In this round of US suppression, China should focus on handling its own affairs. In the short term, reduce shocks, such as stabilizing the stock market through large state funds and state-owned enterprises' purchases and support; in the long term, the more important task is to release internal potential through reforms, building regional and unified large markets, which represents true progress.
We have entered a stage where technology leads the economy. In regions like the Pearl River Delta represented by Shenzhen and the Yangtze River Delta represented by Hangzhou, numerous tech companies are emerging, and China is gradually transitioning to the original innovation phase of "0 to 1." Once this pattern solidifies, in 10-15 years, perhaps the US and other countries will depend on our technology. In the field of new energy vehicles, Germany has already sought cooperation with China, which was unimaginable ten years ago.
Meanwhile, since the US portrays itself as an unreliable and selfish entity, China should demonstrate rationality and fairness, continuing to remain open. Naturally, people will make their choices. China does not form cliques but attracts others through action, which is crucial.
Source: Island侠's WeChat Official Account
Original article: https://www.toutiao.com/article/7491856573317349907/
Disclaimer: This article solely represents the author's views. Feel free to express your opinions using the buttons below to indicate your stance.