Interview |Yu Miaojie on the Logic Behind the China-US Trade War

摘要：Recently, the China Wealth Management 50 Forum (CWM50) published a report on remarks made by Yu Miaojie, Deputy to the National Pe

Recently, the China Wealth Management 50 Forum (CWM50) published a report on remarks made by Yu Miaojie, Deputy to the National People’s Congress, Fellow of the International Economic Association, and President of Liaoning University (LNU), at the thematic seminar titled “Unexpected Results of the China-U.S. Economic and Trade High-Level Talks: Impact and Prospects”. The original transcript is reprinted below:

On May 17, the China Wealth Management 50 Forum (CWM50) hosted a thematic seminar titled “Unexpected Results of the China-U.S. Economic and Trade High-Level Talks: Impact and Prospects” . Yu Miaojie, President of Liaoning University, attended the event and took part in the discussion.

In his remarks, Yu Miaojie noted that the actual average tariff on Chinese exports to the United States has reached as high as 50%, not the 10% commonly perceived. By analyzing the logic behind Trump’s trade war and evaluating its reasonableness point by point, he pointed out that the China-U.S. trade surplus issue requires comprehensive consideration of both trade in services and trade in goods. The tariff imbalance was largely addressed in the first phase. The optimal solution is not for the U.S. to impose additional tariffs, but for China to expand imports. The concept of “reciprocal tariffs” is essentially a manifestation of the U.S. externalizing its own problems. Subsequently, he further explored potential changes in the future global trade landscape, including inflation and policy dilemmas within the U.S., challenges of industrial substitution, and the limitations of tariff policies. He also discussed the direction of U.S. tariff policies toward other countries, the prospects of the USMCA (U.S.-Mexico-Canada Agreement), and the advancement of the China-EU Comprehensive Agreement on Investment (CAI). Finally, he proposed suggestions for China to build a more open and comprehensive pattern of opening-up along three dimensions: larger scale, broader scope, and deeper level.

I. Current Actual Tariff Levels between China and the US

Firstly, the better-than-expected outcomes achieved in the China-U.S. high-level economic and trade talks are highly commendable. However, based on the briefing content, many believe that China-U.S. tariffs are only 10%. In reality, according to our detailed calculations, the average tariff on Chinese products exported to the U.S. is 50%.

The recently added tariff is 10%, plus an additional 20% imposed due to the fentanyl issue, totaling 30%. In fact, during the first phase of the China-U.S. trade war initiated by Trump, there were other tariff increases amounting to approximately 20%. These include a 25% tariff on $50 billion worth of goods in July 2018, another 25% on $200 billion worth of goods in September 2018, and a 15% tariff on $110 billion worth of goods in late 2019. After the conclusion of the first-phase negotiations on December 13, 2019, the 15% tariff was reduced to 7.5%. Overall, the total tariffs on Chinese exports to the U.S. at that time accounted for about 19.7%, close to 20%. Meanwhile, U.S. exports to China faced a 21% tariff. Therefore, after the first phase, tariff levels were roughly equivalent. With the implementation of the recent additional tariffs, the tariff on Chinese products exported to the U.S. has risen to 50%, while the tariff on U.S. products exported to China stands at 30%.

II. Understanding the Logic of Trump’s Trade War

Trump indeed has his own logical framework, regardless of its reasonableness. Therefore, we can first outline his logic, then analyze its validity, and identify aspects beneficial to us.

Trump’s trade war logic can be summarized in four points:

First, he believes the U.S. is “losing” in China-U.S. trade. His evidence is the $360 billion U.S. goods trade deficit with China last year.

Second, he attributes this “loss” to tariff inequity. An example he frequently cited during “Trade War 1.0” was China’s 25% tariff on imported cars versus the U.S.’s 2.5%.

Third, he sees the solution as imposing high tariffs on China.

Fourth, in “Trump 2.0,” he emphasizes so-called “reciprocal tariffs.”

However, analysis reveals that this logic is flawed.

One is the trade surplus issue.While the U.S. had a $360 billion deficit in goods trade, China had a $300 billion deficit in services trade with the U.S. Overall, China achieved only a $60 billion surplus. This $60 billion figure does not yet consider the earnings of U.S. companies from their investments in China. Although these earnings appear in Chinese exports, the actual profits belong to U.S. companies, amounting to approximately $100 billion. Therefore, when comprehensively calculated, the economic and trade relationship between China and the U.S. is roughly balanced across services and goods trade.

Two is the tariff inequity issue. During the first phase of the trade war, tariff levels between the two sides became largely equivalent, both around 20%. In February this year, Yu suggested that if the US imposed only an additional 10% on China, China might not necessarily retaliate immediately; however, if the US continued to exert pressure, retaliation would be inevitable.

Three is the solution.Trump believes the solution to the above problems is imposing tariffs on China. In reality, the best solution should be for China to expand imports. Even under the first-phase trade agreement, if China were unaffected by other factors, the U.S. export ban on high-tech products prevented China from importing them, meaning the trade surplus would persist.

Four is “reciprocal tariffs”. The U.S. uses the fentanyl issue as a pretext for imposing tariffs, but the fentanyl problem is an externalization of America’s own issues. Our next step in negotiations could focus on the “reciprocity” principle, demanding the U.S. remove the fentanyl-related tariffs.

III. Potential Future Changes in Global Trade

The first judgment concerns U.S. policy choices and industrial layout.

Firstly, U.S. inflation and policy dilemma. In April, Yu predicted that Trump would return to the negotiating table because current U.S. inflation remains high. Data shows the overall inflation rate is 2.33%. There is also disagreement between the Federal Reserve and Trump on interest rate policy. The Fed favors maintaining high rates to curb inflation, while Trump wants low rates, as high rates suppress consumption and thus hinder economic growth momentum.

Secondly, realistic challenges of industrial substitution. From the producer’s perspective, industrial transfer or substitution is crucial. Take Nike shoes as an example: in China, it’s a labor-intensive industry, but in Maine, USA, it’s capital-intensive due to robotic production. While some industries might achieve partial substitution, it takes time. The short-term establishment of complete upstream and downstream industrial chains is difficult — “distant water cannot quench a nearby fire”. This is one important reason why Trump is eager to return to negotiations.

Thirdly,limitations of tariff policies and negotiation tactics. High tariffs generate some revenue for the U.S. However, when tariffs reach 145% or even 245%, it becomes akin to “killing the goose that lays the golden eggs”. Prohibitive tariffs mean goods cannot enter the market, generating zero revenue. Furthermore, at the negotiating table, we must be wary of Trump’s tactics. For instance, he might raise tariffs to 145% and then lower them to 50% – the so-called “art of the deal”. We should remain calm and respond with constancy to change.

The second judgment concerns the direction of U.S. tariff policies towards other countries. Trump previously stated he would impose high tariffs on China while suspending tariffs on other countries for 90 days. China’s countermeasures have won widespread international respect. A month ago, at a conference in St. Petersburg, professors from various countries expressed admiration for China, noting that only China dared to stand up and respond, while other countries chose to endure losses without taking action. Therefore, Yu believes that after the 90-day suspension period ends, the U.S. may still impose tariffs on other countries. Regarding whether the U.S. will cancel the currently frozen 24% tariffs on China after 90 days, Yu is not optimistic. China-US tariff wrangling will be a protracted and fluctuating process, not smooth sailing.

The third judgment concerns prospects for the USMCA. The USMCA faces a risk of disintegration due to significant differences in the economic structures of Mexico, the U.S., and Canada. Even in peaceful times, the three parties have many contradictions. It is highly likely that during Trump’s potential term, Mexico could be excluded from the agreement, and Canada faces similar danger. However, if the next U.S. administration is Democratic-led, the U.S. and Canada might realign, but the reintegration of all three USMCA members is less probable.

The fourth judgment is that China should proactively advance the China-EU Comprehensive Agreement on Investment (CAI) and even expand the scope of this agreement to form a “semi-globalization excluding the U.S.” Monroeism and classical isolationism are prevailing trends in the U.S. today. From the U.S. perspective, the Americas region will likely become its “backyard”. If China can unite with ASEAN and the EU to achieve cooperation, we will be better positioned to navigate the current international situation – constructing a “U.S.-excluded” semi-globalization pattern, which may become a new paradigm.

IV. Building a More Open and Comprehensive Pattern of Opening-Up

To respond to all changes with constancy, we will build a more open comprehensive pattern of opening up to the outside world by focusing on three dimensions: larger scale, broader scope, and deeper level.

First, opening up on a“larger scale”involves two aspects: merchandise trade and services trade. In merchandise trade, we should diversify export destinations. According to April data from the General Administration of Customs, although the China-U.S. trade war caused a sharp 21% decline in China’s exports to the United States, China’s global exports still rose, with exports to emerging markets like Africa showing growth. This indicates that we need to gradually explore more niche markets. At the same time, China’s total trade volume with Russia has also increased, currently approaching $250 billion.

In services trade, China proposed building a strong trading nation in 2015, where services trade is a key area. However, the development of services trade has lagged in recent years. China’s recent visa-free policies for certain countries will help attract more foreign tourists, boosting services trade and promoting cultural exchanges. Additionally, we can advance services trade through education. In China’s gaokao-based education system, university admission requires passing the national college entrance examination, which poses inconvenience for foreign students. Considering that education is a critical pathway to preventing social stratification, we can increase openness in postgraduate education, emphasizing both students from developing countries like Africa and attracting those from developed nations such as Japan, South Korea, and the United States to pursue advanced studies in China. This will enhance the level and influence of China’s education services trade.

Opening up in a “broader scope” entails three key points. First, in outbound direct investment, fostering people-to-people bonds is crucial. Take Mauritius as an example: with its frequent rainfall, Yutong Bus Company built bus shelters during its investment in the country, placing eye-catching advertisements on them. This approach not only raised the company’s visibility but also won the goodwill of local residents. Second, there is no need to overly worry about technology transfer. For instance, when cooperating with European and other countries, we may transfer electric vehicle technology. Technology transfer itself is not something to be feared, as China is fully capable of sustaining innovation and maintaining technological leadership. From this perspective, we are also responding with concrete actions to the unreasonable accusations from the United States. Third, in the green trade sector, we should further “tailor approaches to local conditions” based on the specific circumstances of target countries, diversifying market expansion strategies. In Costa Rica, for example, BYD has established 4S dealerships, fully demonstrating the competitiveness of China’s green products in the international market. Moreover, local professors often choose Huawei and Xiaomi smartphones, indicating that Chinese green products have vast development potential across different market segments. Currently, China’s green trade accounts for around 14% of global trade, with substantial room for future growth.

Opening up at a “deeper level”requires a fundamental shift from factor-based opening to institutional opening. For example, actively advancing the China-Japan-South Korea Free Trade Agreement is of great significance amid current global transformations. While China has a bilateral trade agreement with South Korea, it does not yet have one with Japan. Although the Regional Comprehensive Economic Partnership (RCEP) has taken effect, its level of openness is lower than that of typical bilateral trade agreements. Therefore, we should vigorously promote the construction of the China-Japan-South Korea Free Trade Area. If a trilateral agreement proves unattainable for now, we can prioritize advancing a China-Japan bilateral free trade agreement. Amidst economic and trade competition, firmly grasping the “Silk Road” strategy holds profound implications. In this regard, I suggest that the Maritime Silk Road could expand northward. While southward development is important, forming free trade zones with Middle Eastern countries will be difficult in the short term. Promoting the China-Japan-South Korea free trade agreement may be a more pragmatic choice at this stage. As for the Silk Road Economic Belt, given the ongoing Russia-Ukraine conflict and the complex situation in Pakistan, its development could extend eastward, strengthening economic and trade agreements with Russia. Currently, Russia has strong demand for cooperation with China, offering vast space for bilateral collaboration. From this perspective, a differentiated development strategy — expanding the Maritime Silk Road northward and the Silk Road Economic Belt eastward — may be a worthwhile approach to consider.