Implications for China from Trump’s "Liberation Day" tariff
China Translated - Week in Review #45
Hi folks, I will pause a bit on the “low-trust society” series and make some quick comments about the most important news item of the past week: Trump’s “Liberation Day” announcement.
First, exactly how high is the US tariff for China now?
There are many estimates, and there are even reports that the White House itself is not really sure about this. But I think the most reliable estimate I have seen so far comes from Chad Brown, the senior fellow at the Peterson Institute for International Economics, which was 76%, taking into account the impact of the Trump 1.0 tariff.
How painful will it be for China?
I think the way this tariff war unfolded surprised everyone, in that it was really about almost everyone.
On the one hand, the part about China is expected. Coming into 2025, China expected that Trump 2.0 would unleash at least a 60% tariff. Now it’s 54%, so it is well within the range. On the other hand, the part about the rest of the world, especially major ASEAN countries like Vietnam and Thailand, is totally unexpected by anyone.
It’s like this widely shared meme photo on the Chinese Internet, putting Trump’s face on Dowager Empress Cixi when she declared wars against all the other major powers of the world in a classic TV show, The Road to the Republic.
Now, putting in the shoes of a Chinese exporter. Your customers are Walmart or Target. How will you respond to this? If this tariff were on China alone, you would have no choice but to shoulder the cost alone. But now, you actually have higher bargaining power. For once, you would contemplate passing on the costs, as now it’s Walmart and Target who have no choice. After all, what’s the alternative? Everyone has been tariffed to similar levels.
For this reason, although many banks are projecting ~2 percentage point losses for China’s GDP, I believe the pains for China have been exaggerated. The banks are still basing their estimates on the idea of a Trump 1.0 style tariff.
It is true that before April 9, there are still chances for many of the ASEAN countries to negotiate. Vietnam is already sending their deputy prime minister to the US. But I won’t expect too much coming out of these negotiations because 1) it’s not realistic to strike down the announced number substantially without paying a shamefully dear price, and 2) it’s not as if Trump will care. I think he has made it abundantly clear that he hates trade deficit and does not care about anything else.
If we talk about the pain, I think we should be more worried about American consumers and companies, with inflation bound to rise further and with vastly compressed profit margins. If it’s ultimately a contest between pain acceptance levels, my wager is always on the China side.
This is what Marco Castelli, a long-time Shanghai-based Italian exporter, has to say about this:
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