China's response to Trump's acknowledgment of excessively high tariffs on imports from China, with the U.S. previously stating that it expects the tax rate to be significantly reduced; how much is expected to be reduced for both sides to be satisfied?

The complexity of Sino-U.S. economic and trade relations determines that tariff adjustments are not simply a numerical game, but a dynamic balance of multiple political and economic considerations. Based on the current situation, both sides may reach a phased consensus through 'stepwise adjustments + structural exemptions', but the core game will extend from the surface of tariffs to deeper fields such as technology and industrial policy. The following analysis unfolds from three dimensions:

One, the technical space for tariff adjustments

1. Benchmark Anchoring Effect

Before the 2018 trade war, the average tariff on Chinese goods was 3.1%, and the current weighted average tariff rate is about 19.3%. Considering that about 1.5 percentage points of core inflation in the U.S. are directly related to tariffs on China (according to the Peterson Institute's estimates), the Biden administration faces economic pressure, but the political red line is **not to fully return to pre-trade war tariff levels. It is expected that the first phase may adjust to the range of 12%-15%, focusing on livelihood-related areas such as machinery parts and daily consumer goods.

2. Differentiated Layering Strategy

Strategic competition categories (semiconductors, new energy equipment) may maintain high tariffs of 25% in exchange for hawkish support from Congress.

Intermediate goods supply chain (chemical raw materials, automotive components) may drop to 8%-10%, alleviating cost pressure on American manufacturers

Consumer goods (furniture, electronics) have exemption windows, potentially reducing to 5%-7% in phases before 2025

3. Leverage of Section 301

The U.S. may link tariff adjustments with the implementation rules of the Inflation Reduction Act, for example, requiring Chinese power battery companies to meet North American supply chain ratios to enjoy tax rate benefits, forming a 'selective tax reduction' industrial balance.

Two, China's Structural Countermeasure Chips

1. Rare Earth Control Toolbox

China accounts for 90% of global rare earth processing capacity, and recent export controls on gallium and germanium have demonstrated asymmetric countermeasure capabilities. If the U.S. continues to exert pressure in the high-end chip field, it may trigger more precise tiered controls on rare metal exports.

2. Monetary Deterrence of U.S. Treasury Holdings

China holds $848.8 billion in U.S. Treasury bonds (as of June 2024), which, although reduced by 34% from its peak, still has operational space to influence U.S. bond yields by adjusting the duration structure. Particularly during the U.S. Federal Reserve's balance sheet reduction cycle, China's holding strategy may form a hidden game with the U.S. Treasury's bond issuance costs.

3. Third Market Substitute Competition

The RCEP region has formed alternative export capacities to the U.S., such as electronics assembly in Vietnam and automotive manufacturing in Mexico. China can dilute the actual impact of U.S. tariff adjustments by regionalizing the industrial chain layout, forcing the U.S. to consider 'non-China supply chain cost premiums' in negotiations.

Three, the deeper game beyond tariffs

1. Dominance of Digital Trade Rules

The U.S. may request that TikTok data localization, cloud computing market access, and other issues be included in tariff negotiations, attempting to exert pressure through a 'tariff-digital rules' linkage, replicating the digital trade clauses in the USMCA.

2. Equal Subsidies for New Energy Industries

The U.S. IRA Act provides $369 billion in clean energy subsidies but restricts Chinese supply chain participation. China may demand that the U.S. ease market access for new energy vehicles and photovoltaic components as a precondition for tariff reductions, forming a 'green tariff swap' mechanism.

3. Transformation of Technical Trade Barriers

Currently, the U.S. technology export control list for China covers 1,892 items (BIS data). In the future, it may exchange 'easing some controls' for China's concessions on issues such as transparency in industrial subsidies and neutrality in state-owned enterprise competition, achieving a transmission of tariff pressure towards institutional reforms.

Limited consensus under dynamic equilibrium

The most likely phased proposal is to reduce the overall tariff on China from 19.3% to 12%-13%, while establishing a 'fast track for key product exemptions', but the U.S. will simultaneously strengthen investment restrictions on Chinese semiconductors and AI technologies. This 'economic relief + technological pressure' combination strategy addresses U.S. business demands while soothing strategic competition factions. For China, it is necessary to be wary of bundling tariff concessions with institutional concessions, establishing a 'technology for market' counterbalancing mechanism in advantageous fields such as photovoltaics and lithium batteries. The future of Sino-U.S. economic and trade relations is shifting from a 'trade war' to a more complex 'rules war + innovation war' deepwater zone.