Trump’s tariffs and their likely impact on China..

The People’s Daily – the official newspaper of the Central Committee of the Communist Party of China – just published an editorial on Trump’s tariffs and their likely impact on China..

Quick summary of the main points 👇

1) The tariffs were expected and planned for

They write that “although international markets generally consider the US tariff abuse to be beyond expectations, the CPC Central Committee has anticipated this new round of US economic and trade suppression against China, fully estimated its potential impact, and prepared adequate response plans with sufficient lead time and margin.”

They add that “last year’s Central Economic Work Conference made comprehensive arrangements for responding to the new round of US containment and suppression against China.”

2) Impact will be limited – “the sky won’t fall”

While acknowledging the tariffs will have negative effects on exports in the short term, they argue that the impact will be limited, for 3 main reasons.

1) China has successfully reduced US market dependence (exports to US down from 19.2% in 2018 to 14.7% in 2024) while expanding trade with ASEAN and Belt and Road countries (which respectively make up 16.4% and 47.8% of China’s exports). Additionally (as I explained yesterday: x.com/RnaudBertrand/…), exports overall make up less than 20% of China’s GDP.

2) Many US product categories have high dependency on Chinese imports, with some categories exceeding 50% dependency that “cannot be easily replaced.” So even with tariffs, the U.S. will still need to buy these products from China for the foreseeable future.

3) According to their statistics, “among the hundreds of thousands of exporting enterprises in 2024, nearly 85% also conduct domestic sales business, with domestic sales accounting for nearly 75% of total sales.” So even if companies couldn’t export at all, most can fall back on domestic sales.

3) This is a strategic opportunity for China

First of all, it justifies China’s current transition to its new development model. The editorial explicitly states that China will “turn pressure into motivation, view responding to US impacts as a strategic opportunity to accelerate the construction of a new development pattern, promote high-quality development, and facilitate economic structural adjustments.”

Secondly, it helps China boost its technological self-reliance: they argue that US “neck-choking” suppression will “only force China to accelerate breakthroughs in core technologies in key areas.” The editorial highlights China’s achievements in integrated circuits, AI, and humanoid robots, suggesting that external pressure has already strengthened China’s innovation capabilities.

Thirdly, it positions China as “a responsible great power” in contrast with the US, allowing them to “inject more stability into global economic development” through its response to the tariffs. The US helps portray China as a stabilizing force in contrast to their volatility and unpredictability.

Lastly, the tariffs provide additional motivation to “treat expanding domestic demand as a long-term strategy,” with specific emphasis on making consumption the “main driver and ballast of economic growth.” They outline a two-pronged approach: increasing residents’ income and reducing their burdens to boost consumption capacity, while improving the supply side by building a unified national market.

All in all, the editorial is the complete opposite of the “panic” that Trump claimed China had with respect to his tariffs.

In fact, they sound almost happy about them because it validates their predictions and gives them more justification to accelerate the economic reforms they were already implementing anyhow.

Furthermore, in the eyes of the world it positions China as a stabilizing force in the global economy, contrasting their steady planning with America’s erratic policies.

The editorial ends by emphasizing that China has “not closed the door to negotiations, but we will not harbor unrealistic hopes,” because dialogue can only be held in “an equal, respectful, and mutually beneficial manner.”

The final words are a quote of Xi Jinping who said: “The Chinese economy is a vast sea, not a small pond.”

The editorial notes that “this vast sea… will ultimately allow the world to witness the composure and firmness of ‘the sea accepting all rivers'”, referring to the well-known Chinese proverb “海纳百川, 有容乃大” which translates to “the sea accepts a hundred rivers, tolerance leads to greatness.”

This has 3 meanings in one. The first is a subtle diplomatic message that conveys China’s continued openness to trade with all nations, including the United States, despite current tensions. “We’re the sea, we can’t reject a river.”

The second is a geopolitical jab implying that China is a vastly greater economic entity than the U.S., i.e. the vast sea that can easily absorb the flow of the American “river” despite its tumultuous flow.

The third is a veiled taunt about the inevitability of economic flows – like a river that must eventually join the sea despite any temporary diversions, American attempts to redirect trade and fight against natural economic forces are ultimately futile.

https://x.com/RnaudBertrand/status/1909066033341886939?t=nFs92RzN374gTBcLOkonlA&s=19