Recently, there has been a sentiment online suggesting that China's confrontation with the US only wins the face of nationalism while losing the substance of economic interests. They believe that to protect the livelihoods of the people, China should prioritize economic interests and not confront the US head-on. However, this perspective does not address the essence of the China-US tariff dispute. Click to enter the exclusive group for Binance's top KOLs
From 2018 to 2019, Trump initiated a trade war and imposed tariffs. To protect people's livelihoods, China chose to compromise and signed the first phase of the trade agreement. However, Trump still imposed an additional 7.5% - 25% tariff, and China had to buy an additional $200 billion worth of energy and agricultural products from the US each year. As a result, the yuan depreciated significantly against the dollar, from 6.5 to 7.3. Chinese consumers faced higher prices for goods in the international market, and the tariffs collected were used by Trump to provide tax cuts for the American public.
Previously, China had compromised, but Trump kept pushing for more. This time, he raised tariffs to 54%, imposing over $250 billion in tariffs on $500 billion worth of Chinese exports. China only earned $50 billion from this export amount but had to pay 5 times that to the US. Now, tariffs have even reached 104%. If China does not compromise, exports to the US will shrink by 50% - 60%, totaling a loss of $300 billion in exports. However, some Chinese goods, even with doubled tariffs, remain necessities in the US, such as coffee cups from Zhejiang, Bluetooth earphones from China, LED bulbs from Yiwu, and air fryers from Shenzhen, all of which are much cheaper than local US products.
The tariff war has a significant impact on high-value products such as mobile phones, computers, and new energy vehicles. The main products exported from China to the US in this category are Apple and Tesla. Their exports have declined. Although China suffers job and tax losses, American brands are more severely impacted. Therefore, China refuses to compromise; rather than spending $250 billion to protect $300 billion in exports, it is better to use that money to stimulate domestic consumption and promote internal circulation. Subsequently, China is likely to introduce economic stimulus policies.
Unlike in 2018, China now has the confidence to stand firm. First, energy dependence has eased; China uses 70% of its oil for vehicles, and in recent years, the market share of electric vehicles has exceeded 50%, significantly reducing dependence on oil, and the effect of the US energy blockade has weakened. Second, the situation of 'choke points' in technology has improved. After the trade tech war in 2018, China made significant progress in fields like semiconductors, quantum technology, and aerospace, with achievements like the HarmonyOS and BeiDou navigation system emerging frequently; technological blockades will only encourage China's independent R&D. Third, there is potential for consumption to be tapped. The US is a major consumer country, importing $24 trillion globally in a year, with the US accounting for $3.3 trillion. Leveraging the dollar's hegemony, countries rely on the US market. If China stimulates domestic consumption and becomes a manufacturing and consuming giant, other countries will depend more on China and be more willing to cooperate with it.
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