#10 China Scholar Insights: the China-U.S. Trade War and the Trump 2.0 Tariff Stick
Only through multilateral negotiations can we secure a stable and prosperous global economy.
Welcome to the 10th edition of China Scholar Insights!
China Scholar Insights is a feature aiming to provide you with the latest analysis on issues that Chinese scholars and strategic communities are focusing on. We carefully select commentary and highlight key insights. Questions and feedback can be directed to sch0625@gmail.com
I’m SUN Chenghao, a fellow with the Center for International Security and Strategy (CISS) at Tsinghua University. ChinAffairsplus is a newsletter that shares Chinese academic articles focused on topics such as China’s foreign policy, China-U.S. relations, China-Europe relations, and more. This newsletter was co-founded by my research assistant, ZHANG Xueyu, and me.
China Scholars’ Insights on the China-U.S. Trade War and the Trump 2.0 Tariff Stick
Tariff Tug-of-War and the Road to Dialogue
In April 2025, the Trump administration signed the “Reciprocal Tariff” Executive Order, announcing a uniform 10% “minimum benchmark tariff” on all trading partners. On April 8, the U.S. further escalated the situation by raising the tariff rate on Chinese exports to the United States to 84%. In response, China imposed equivalent tariffs on imports from the U.S. Shortly thereafter, the U.S. again raised tariffs on Chinese goods, increasing the rate to 125%. As a result, China-U.S. trade frictions escalated into a state of intense tit-for-tat confrontation.
At the international level, the Trump administration sought to leverage tariffs as a tool to accelerate economic “decoupling” from China and promote the reshoring of manufacturing industries. However, this approach exacerbated strategic tensions between the two major powers but also affected the global supply chain’s resilience and overall market vitality.
Against this backdrop, the resumption of China-U.S. economic and trade dialogue became an urgent priority to ease tensions and stabilize the global economy. From May 10 to 11, 2025, senior economic and trade officials from China and the United States held their first face-to-face talks since the outbreak of the “tariff war” in Geneva, Switzerland. After two days of negotiations, both sides issued a joint statement on May 12, announcing a phased reduction of the previously imposed high tariffs over the next 90 days and committing to continued constructive consultations on bilateral economic and trade relations.
Summary
The aim of Trump’s “tariff stick” in his second term prioritized political optics over economic logic, shifting from competing within the existing system to reshaping globalization rules through the weaponization of tariffs. However, his “reciprocal tariff” policy was overly simplistic and detached from real-world trade dynamics. Coupled with the numerous challenges encountered during the implementation of tariff policies and the resulting damage to the U.S. economy itself, the goals of reshoring manufacturing and forming a tariff alliance to encircle China remain unattainable.
Meanwhile, China has focused on industrial upgrading and technological innovation, moving up the value chain to become a key hub for raw material suppliers and tech brands in recent years. In response to trade wars and future fluctuations, China should focus on promoting domestic demand to stabilize public confidence. Externally, China should collaborate with major economies to counter U.S. unilateralism and safeguard the integrity of multilateral trade principles.
Given the negative impact of U.S.-China economic “decoupling”, resuming economic and trade dialogue between China and the United States has become imperative to avoid the two sides falling into a zero-sum game. The outcome of the recent China-U.S. trade negotiation exceeded expectations, marking a significant breakthrough in de-escalating tensions and trade negotiations since the U.S. launched the tariff war in 2025. However, it does not signify the resolution of structural contradictions between China and the U.S., nor does it imply any fundamental change in the logic of major power competition.
Insights
SU Qingyi, LIU Jiaqi: Trump 2.0’s Trade Logic: Reshaping Globalization Rules Through Tariff Weaponization
Trump 2.0’s Trade Policy: Faster Action, Broader Scope, More Systematic Planning, and Fundamental Legal Shifts
In Trump’s first term, he used 14 months after taking office to launch the initial round of tariffs against China, primarily relying on Section 301 of the Trade Act of 1974 while still attempting to preserve a semblance of legality under the framework of the WTO. His policies were not coherent and limited to a few key industries.
In contrast, during his second term, trade policy was swiftly adjusted: additional tariffs were imposed to not only china but also allied countries and to a broader range of sectors, such as semiconductors and pharmaceuticals. This approach evolved into a more organized and long-term strategic layout. On his first day as president, Trump issued a presidential memorandum entitled “America First Trade Policy”(AFTP), which laid out specific policies on trade negotiations and acceleration of reshoring. His administration has since undergone a radical shift by invoking the International Emergency Economic Powers Act (IEEPA), providing U.S. executive agencies with near-unlimited power to impose trade sanctions.
From “Competing for Interests Within the Existing System” to “Reshaping Globalization Rules Through Tariff Weaponization”: Trump 2.0's Trade Policy was made to Serve the “America First” Agenda
Trump no longer views the imposition of tariffs solely as a means of achieving trade balance or protecting domestic industries. Instead, tariffs have become tools to serve strategic goals, including geopolitical interests and economic sovereignty. On one hand, tariffs are now linked to broader political issues. For instance, the rationale behind the new round of tariffs on China, Canada, and Mexico also includes tackling drug smuggling and illegal immigration. On the other hand, tariffs are used to protect U.S. industries and promote the return of manufacturing. “Reciprocal tariffs” announced by Trump is intended to provide the U.S. with a dominant position in trade negotiations, forcing trade partners to make concessions.
Trump’s 2.0 trade policy constructs a U.S.-led parallel trade system, where the U.S. reshape the global trade order according to its own preference and completely reject the WTO’s principles of non-discrimination. The resulting chilling effect will cause global trade costs to rise exponentially. Other countries will adjust their trade policies to seek new partners and markets, reducing dependence on the U.S.-led trade system and mitigating the risks brought by American unilateralism and protectionism. All countries should build a shared consensus that “no nation comes first” and collectively resist Trump’s tariff storm.
WU Jing: What will be the effects of the US “tariff stick” on China?
Trump’s “Reciprocal Tariff” Policy has Exacerbated the Trend of Deglobalization in the Supply Chain
In recent years, the United States has caused a standstill in the process of globalization. However, the economic buffer zones around major powers have emerged, serving as bridges for trade. Trump’s so-called “reciprocal tariff” policy has further disrupted the global supply chain, putting both US allies and economic buffer zones at the risk of severe supply chain disruptions, and shaking the US alliance system.
Trump’s Tariff Policy aims to achieve two Impossible Effects
By imposing high tariffs on all trading partners, the Trump administration tries to force the return of manufacturing to the United States. However, this goes against the basic laws of economics. Persisting in implementing this policy will achieve the opposite effect, and cause greater harm to the US economy.
Secondly, by uniting with its allies to establish a tariff alliance against China, it attempts to encircle China in the fields of trade and technology. However, the scale effect of China’s manufacturing industry and its complete industrial chain bring unparalleled cost advantages. As the “world’s factory”, China holds an irreplaceable position in the global supply chain.
China is Transforming from the “World’s Factory” to the “Global Supply Chain Hub”.
In recent years, China has actively promoted industrial upgrading and technological innovation, shifted towards the upper reaches of the value chain, and become the intermediate hub for the supplier of raw materials and the countries with technical brands. In terms of international cooperation, through the Belt and Road Initiative, China has diversified its channels for resource imports, gradually forming a new international trade system featuring “diversified balance and controllable risks”.
China needs to adopt Proactive Response Strategies amid new Global Trade Tluctuations
In order to deal with the new changes in global trade, China should cooperate with major economies to jointly counter US unilateralism; deepen cooperation in the industrial chain and supply chain with neighboring countries, and build a regional economic community; accelerate independent technological innovation in key fields and promote domestic substitution.
Domestically, the upgrading of domestic demand will create a strong driving force for industrial innovation and upgrading. To build a new pattern of economic growth led by domestic demand, it is necessary to deepen the reform of income distribution, improve the social security system, continuously enhance the consumption capacity and willingness of residents, and focus on cultivating two growth poles: the consumption of high-end goods and the consumption of services.
YAO Yang: Trump’s Tariff Impact and China’ Response Strategy
The Impact of Tariff increases on Economic Growth should not be Underestimated
During the first period of Trump's administration, the United States imposed tariffs of nearly 20% on Chinese products.In his second term, the Trump administration believed a tax rate of 34% could eliminate the trade imbalance between China and the United States. Trump later announced an additional 50% tariff, raising the total tariff rate to 104%.
Currently, due to exports through third countries, such as Vietnam and Mexico.,the U.S. exports still represent 20% of China’s total exports. As for the comprehensive contribution rate of exports to GDP, it can be estimated to be approximately 15%, among which the contribution of exports to the United States to GDP is about 3%. Based on previous elasticity estimates, an 84% increase in tariffs could result in an 84% drop in exports to the U.S, leading to a 2.5 percentage point GDP loss. While adjusting for China’s adaptation and re-export strategies, the impact would likely be around 2%. If this estimate is accurate, achieving the 5% growth target would be difficult without strong domestic growth of 7% to 7.5%.
Turn Crisis into Opportunities: China should further Increase Efforts to Boost Domestic Demand
This year, China faces rising employment pressure, with the number of college graduates exceeding 12.2 million. Many export firms may shift to the domestic market, increasing competition and pushing prices down. Meanwhile, the RMB is also facing depreciation pressure, the exchange rate has fallen to a record low of 7.4. As for the U.S. Dollar, while Trump's policies may cause the US economy to fall into recession, followed by rising inflation, due to the deeper financial system of the United States, funds may not flow out of the United States, but will flow into the United States because of its large financial pool.
Domestically, China’s policy efforts must focus on two major challenges, the “two elephants in the room”, which are the local government financial strains and the downturn in the real estate. Local government and real estate expenditure together account for about half of the total domestic demand. Therefore, ignoring the needs of these two sectors and focusing only on personal consumption is an inefficient strategy. Instead, focusing on the fiscal situation of local governments and the downturn in the real estate market will be a more effective solution. To solve these issues, the experience of stock market stabilization can be applied by having the central government establish a “national team”, either through the creation of a new entity or by utilizing existing companies to purchase housing assets.
WANG WEN, CAI Tongjuan, XU Tianqi, etc.: Interpreting the China-U.S. Geneva Economic and Trade Talks Joint Statement
Encouraging Outcomes from Bilateral Talks Send Positive Signals
At 3 p.m. Beijing time on May 12, the “Joint Statement on China-U.S. Economic and Trade Meeting in Geneva” (hereinafter referred to as the “Joint Statement”) was released. Both sides agreed to cancel 91% of tariffs by May 14 and suspend an additional 24%, resulting in a cumulative reduction of 115%. This outcome far exceeded expectations and marked the most significant breakthrough in de-escalating tensions and trade negotiations since the U.S. launched its tariff war in 2025. It reflects the sense of great power responsibility demonstrated by the leadership of both China and the U.S. to prevent further deterioration of global political, economic, and trade dynamics at a critical juncture. Moreover, it offers a rare ray of hope amidst the shadow of Trump 2.0’s tariff war, rekindling global optimism about the future of globalization.
Temporary Gains Cannot Alter the Logic of Great Power Rivalry
The current “24% tariff suspension and 10% retention” flexible arrangement reflects both the U.S.’s urgent need to address domestic challenges such as soaring inflation and mounting debt, and China’s strategic bottom line of safeguarding industrial chain security while maintaining strategic composure. However, this phase-based consensus is merely a tactical adjustment in the context of a complex international landscape marked by profound shifts and sluggish global economic recovery. It does not signify the resolution of structural contradictions between China and the U.S., nor does it imply any fundamental change in the logic of major power competition. Frictions and significant divergences between the two nations remain likely in the future.
Flexible Response without Changing the Foundation of China’s U.S. Policy
In the face of bilateral and global risks stemming from the China-U.S. tariff war and economic “decoupling,” China remains committed to pursuing institutional opening-up while adhering to the principles of mutual respect and “striving for cooperation through struggle.” This approach aims to avoid the trap of a zero-sum game, serving both China’s strategic interests in managing relations with the U.S. and its broader responsibilities as a major power in a multipolar world. Notably, the time taken to reach this Joint Statement was significantly shorter and more effective compared to the 2018 bilateral trade consultations, demonstrating that there is still room for negotiation in current China-U.S. economic and trade relations, and that a complete decoupling remains unlikely.
The unexpectedly favorable outcome of the talks was not what the U.S. had envisioned when initiating this round of tariff escalation. It is the result of China’s firm, uncompromising, and proactive engagement in the tariff confrontation, despite facing considerable pressure. Compared to the Trump 1.0 era eight years ago, China’s experience and capacity in navigating trade disputes with the U.S. have notably improved. For instance, China’s imposition of export controls on seven categories of heavy rare earths dealt a significant blow to the U.S. defense industry, showcasing China’s strategic foresight and comprehensive approach to countermeasures. By employing a “tariff plus non-tariff” combined strategy, China created valuable strategic space that contributed to the success of this Joint Statement.
While firmly countering U.S. suppression, China continues to uphold its long-standing principles of “daring to struggle, being adept at struggle, and seeking cooperation through struggle,” maintaining its strategic policy foundation of mutual respect, peaceful coexistence, and win-win cooperation in handling China-U.S. relations.
Prudently Seizing the Window of Eased Tensions
In the short term, the Joint Statement has brought a degree of relief to China-U.S. economic and trade relations. China’s foreign trade sector should seize this 90-day window of opportunity to maximize exports to the U.S. However, investors and business leaders must remain cautious, recognizing that the underlying competition between China and the U.S. persists. There should be no illusions or opportunistic expectations regarding the long-term trajectory of bilateral relations.
Given the lessons from the Trump 1.0 era, where a bilateral agreement was torn up just 10 days after signing, and considering Trump’s increasingly erratic behavior, the sustainability of this Joint Statement and the prospects for subsequent negotiations remain highly uncertain. China must remain vigilant against potential breaches of the agreement, safeguard its strategic countermeasure leverage, and approach future negotiations and cooperation with prudence.
In the long run, it is essential to adopt a strategic, long-term perspective on China-U.S. relations, recognizing the coexistence of structural competition and pragmatic cooperation. Actively promoting diversified foreign trade strategies will be key to enhancing China’s economic resilience in a complex global landscape.
Conclusion
Trump’s trade policy has exacerbated deglobalization trends in supply chains, threatening multilateral trade norms, undermining domestic competitiveness and risking global economic instability. To safeguard global economic stability and avoid repeating historical mistakes, all nations must build a shared consensus that “no nation comes first.” Only through multilateral negotiations can we secure a stable and prosperous global economy. The current China-U.S. trade negotiations not only sent a positive signal of managing differences and pursuing rational dialogue, but was also seen as an important step in calming global market volatility and reshaping China-U.S. economic relations. Although fundamental disagreements remain, the two sides achieved a degree of stabilization, laying the groundwork for more in-depth negotiations in the future.
Writers and Editors for Today’s Newsletter:
Editors： SUN Chenghao, GAO Liangyu, WANG Jiaying, BAI Xuhan, HU Lingzhi, HNIN Lei Lei Wai, ZHANG Xueyu, BAI Xuhan and Hannah Shirley