US faces tariff policy backlash as Chinese sit back and 'enjoy the circus'

2025.04.20

Stephen Miran and his ambitious 41-page paper entitled "A User's Guide to Restructuring the Global Trading System" were little known to the public until March, when the Harvard-trained Trump ally was confirmed as chairman of the US Council of Economic Advisers.
The paper was published last November, shortly after US President Donald Trump won a second term. Many Wall Street analysts and intellectuals now believe it set forth the rationale for Trump's tariff strategy.
"The paper raises the issue that trade and economic imbalances are essentially rooted in the forced overvaluation of the dollar, driven by its status as a foreign reserve for other nations," Chinese economist Zhan Yubo told China Biz Buzz.
"It is a problem hard to solve, especially when US economic influence is on a downward trend," Zhan explained. "Basically, he is saying every other country should compensate US financially for that. That's absurd, but the US administration considers it the logic behind seemingly inconsistent and incoherent tariffs actions. There is no logic in this."

Clock is ticking on the credibility of US dollars as US Treasury yields rose to worrying levels.
Zhan is the director of the Office of Western Economics at the Institute of Economics, Shanghai Academy of Social Sciences.
China is bearing the brunt of Trump's tariffs, with duties of 145 percent imposed.
Zhan said Trump's policies may be influenced by the McKinley Tariff of 1890, which raised import duties to almost 50 percent to protect domestic industries and workers from foreign competition.
However, he argued that Trump is more likely to end up with consequences like those from the Smoot-Hawley Tariff Act of 1930, which caused drastic social and economic consequences for the US and led to the 1932 election defeats of President Herbert Hoover and the act's authors, Senator Reed Smoot and Representative Willis C. Hawley.
China Biz Buzz sat down with Zhan to discuss his views on flaws in the thinking of Miran and Trump, on how China has been preparing for US tariffs since Trump's first term in 2018, and on where the trade war may lead.
Q: What's your view on the escalating trade war so far?
A: From the very beginning, I've said that the tariff war is illogical and against the lessons of US history. President Trump can't realize his goals given the current status of the US and how well-prepared China is. It's a question of whether and to what degree these tariffs can actually be implemented.
In past weeks, there was a 90-day pause in some reciprocal tariffs on other countries, and then there was a customs glitch that interrupted the collection of tariffs. Some duties still haven't really been implemented. We are observing some big changes. It's almost becoming a joke.
Trump's biggest problems are the lack of logic in his actions and his underestimation of China's ability to stand its ground.
Q: Where does his logic fail?
A: I'm in the camp that believes Trump is taking the McKinley Tariff of 1890 as a blueprint. President William McKinley was a key advocate of reciprocal trade dating back to his days in the US Senate. His tariffs did not induce inflation during a period when the US was overtaking the UK to become the biggest economy in the world and was expanding its territory.
That's the ideal scenario for Trump: territorial expansion in places like Greenland, bringing manufacturing back to American soil and no inflation.
But in reality, he may well end up with the results that flowed from the 1930 Smoot-Hawley tariffs under President Hoover. The difference between 1890 and today's is two-fold: flagging US credibility as a world leader and the US dollar as an international currency.
You saw how he announced a 90-day delay in some tariffs after US Treasury yields rose to worrying levels, threatening the market that funds budget deficits. The mainstream view is that Trump capitulated to the bond market.
But what is the US without these two burdens? The consumer's market that US is so proud of is supported by the dollar's status as the world's reserve currency. If the US dollar takes a hit, it would be like trying to pull firewood from the flames.

More than 110,000 overseas retailers including Walmart are attending the ongoing Canton Fair, China's oldest trade fair.
Q: You mentioned that China is very well-prepared to weather this storm. How and why?
A: In March, the Chinese government raised its budget deficit from 3 percent to 4 percent, and back in January, it outlined "moderately loose" monetary policy for 2025, leaving room for timely cuts in both the reserve requirement ratio and interest rates. These are all measures to support economic growth and stabilize the financial environment.
These actions and other preparations led to a China bolder in the tariff spat than it was when Trump imposed tariffs in 2018.
After Trump announced his latest unilateral tariffs, China's capital markets tumbled for only one day, while global markets spun into prolonged chaos. Market sentiment here has been relatively stable.
Many Chinese were unsure or even afraid at the start of the tariff war, but now they are just enjoying the circus and even started to joke about it.
Q: Chinese economic data for the first quarter, released this week, beat expectations. Did GDP and other data also surpass your expectations?
A: Yes. We thought the figures would be good, but not that good.
The first quarter is usually the best-performing quarter, followed by a slower Q2 and Q3, and then picking up in the last three months of the year.
GDP growth in the first quarter was higher than the annual target of 5 percent. If you look at the figures for retail sales, fixed assets and net exports – the three driving forces of GDP – you see that growth comes largely from net exports. That may be a result of stockpiling before the expected tariffs in April.
We can expect to see the impact of tariffs start to show up in the second and third quarters, depending on their implementation.
Q: And China is prepared?
A: Yes. Not only the Chinese government but also Chinese companies have been preparing since 2018. Some companies with heavy reliance on US business will experience short-term shock, but overall we are in a much better position that we were back in 2018.
You may remember that surprising sharp turn, when Trump and his wife were having a great time visiting China in November 2017 and then he started a trade war in April 2018.
China was much more dependent on the US, both in terms of markets and key technologies, back then. It learned its lessons, initiating strategic industrial restructuring, polices to boost the domestic market and technological development in key areas.
China is a survivor in the most difficult of times.
Q: Trump contends his tariffs will bring manufacturing back to America. What's your view?
A: As I mentioned, China has prepared for this since 2018. In the eight years since Trump began his first term, there has been no improvement in the American share of global manufacturing, which has been hovering around 12-13 percent. So his tariffs back then didn't bring manufacture back. Neither will it now.
China accounts for about 30-35 percent of global industrial production, and that figure is expected to rise to 45 percent in the future.
Q: Turning to the domestic market, consumer prices fell 0.1 percent in March even as retail sales rose 5.9 percent. How do you explain that?
A: There are a lot of challenges to reach a CPI target of 2 percent this year.
Consumer spending is ultimately decided by household income, which won't increase too much as the economy confronts changes in the external environment.
The government has launched a lot of initiatives to boost consumer spending, including coupons and an expanding subsidy program to encourage people to trade-in old products for newer versions. That is the main reason behind the better-than-expected retail sales figure.
At the same time, central and local governments have been announcing policies to improve social benefits for residents. It may take time to see the cumulative effect of all these different policies.
Q: Where do you see this trade war going?
A: On the US side, Trump's bargaining strategy is often to ask for a very high price at the beginning and then gradually lower it to sew up a deal.
If he is really to serve MAGA as he promised, then the core of all his policies is to bring back manufacturing and create more employment for voters in his support base. That means he will not easily give up, even though he has paused reciprocal tariffs on some countries for 90 days.
His first shot was not fired successfully, creating huge challenges for his cabinet, which includes a lot of extremists and is already showing signs of infighting.
On China's part, we have a very clear purpose – taking good care of our own business.
That means boosting the domestic market, speeding up industrial upgrades and leveraging the good trading terms with export markets like the Association of Southeast Asian Nations, the European Union, Japan, South Korea and countries along the 'Belt and Road' initiative. The US is the ultimate troublemaker here.
Trump thought everyone would cave in once he imposed punitive tariffs. The world didn't.
Source: Shanghai Daily