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“Reciprocal” Tariffs & Observations on the US-China Economic & Trade Relationship

Jul 02-2025   



*This article is based on a speech given by Zha Daojiong, Professor of International Political Economy at the School of International Studies at Peking University.

 

The Complexity & Impact of US Tariff Adjustments

Tariff is an extremely complex and nuanced trade measure. Between two economies, trade and tariff rate adjustments usually follow two main principles:

1. Indispensable products whose country of origin is not a prerequisite;

2. Products that are irreplaceable, especially in the short term when it is difficult to find substitutes in terms of either products or prices.

One of the major policy objectives of tariff adjustment is, of course, to change irreplaceability at source. It is important to understand that tariffs fall into two categories: declared and enforced, and that the real leverage lies in the product itself. A product's competitiveness does not only depend on its price or tariff level, but also on its indispensability or irreplaceability in a given market.

 

How to Understand High US Tariffs on China

The current US administration has introduced frequent and fast-paced foreign economic policies. A study by Yale shows that tariff adjustments to China and the rest of the world, as well as to US wool, cocoons and other non-core domestic commodities, are significantly affected by the impact of larger processed rice and leather products, which have a high degree of dependence on imports. Other commodities affected include aluminium products, agricultural products, basic pharmaceuticals and energy.

Although the U.S. has reduced the charges imposed on China-linked vessels and delayed their implementation due to feedback from domestic enterprises, these measures set a precedent that can be raised or lowered.

 

U.S. Obsessions & Deeper Goals

Currently, many believe that the U.S. faces a product trade deficit because of the decline in manufacturing. However, U.S. manufacturing strength is not weak. In fact, the so-called 'hollowing out' of U.S. manufacturing is only evident in labour-intensive industries such as shoe and furniture production, whereas the United States is strong in high-end manufacturing. Moreover, the United States has a huge surplus in the service trade.

Many people agree that the ultimate goal of U.S. foreign economic policy is the “Mar-a-Lago Accord”, the core demands of which have gradually evolved into five specific claims.

Firstly, the U.S. has put forward these claims due to its financial difficulties. Secondly, the United States is demanding that other countries open their markets to American goods. Thirdly, the United States is calling on other countries to increase their defence spending and purchase US weapons and equipment. Fourth, the United States is calling on other countries to invest in and build factories in the United States. Fifthly, it hopes that other countries will provide financial support by writing cheques directly to its Treasury.

This suggests to us that the current U.S. administration's policy goal is to reshape the global economic landscape by adjusting the currency exchange rate system and the cost system rather than limiting itself to adjustments at product trade level.

 

China's Response Strategy

How should we respond to the current situation?

First, uncertainty will remain a key feature of US economic and trade policies towards China, and this is likely to persist beyond 2028. Therefore, we must prepare for the long term.

Second, China should continue to prioritize people-centred development. To safeguard employment stability, we must demonstrate our commitment as a great nation to livelihood protection, particularly in terms of medicine supply, by proactively exempting relevant products from tariffs. At the same time, we should open up the medical services sector to foreign investment.

Third, China should continue to respond flexibly to changes in the current situation, bearing in mind the concept of “the world needs China and China needs the world”.

Fourth, China should focus on the long term and endeavour to maintain trade, supply and value chains with all economies, including the United States, thereby contributing to the stability and development of the global economy.

“Reciprocal” Tariffs & Observations on the US-China Economic & Trade Relationship

Jul 02-2025   



*This article is based on a speech given by Zha Daojiong, Professor of International Political Economy at the School of International Studies at Peking University.

 

The Complexity & Impact of US Tariff Adjustments

Tariff is an extremely complex and nuanced trade measure. Between two economies, trade and tariff rate adjustments usually follow two main principles:

1. Indispensable products whose country of origin is not a prerequisite;

2. Products that are irreplaceable, especially in the short term when it is difficult to find substitutes in terms of either products or prices.

One of the major policy objectives of tariff adjustment is, of course, to change irreplaceability at source. It is important to understand that tariffs fall into two categories: declared and enforced, and that the real leverage lies in the product itself. A product's competitiveness does not only depend on its price or tariff level, but also on its indispensability or irreplaceability in a given market.

 

How to Understand High US Tariffs on China

The current US administration has introduced frequent and fast-paced foreign economic policies. A study by Yale shows that tariff adjustments to China and the rest of the world, as well as to US wool, cocoons and other non-core domestic commodities, are significantly affected by the impact of larger processed rice and leather products, which have a high degree of dependence on imports. Other commodities affected include aluminium products, agricultural products, basic pharmaceuticals and energy.

Although the U.S. has reduced the charges imposed on China-linked vessels and delayed their implementation due to feedback from domestic enterprises, these measures set a precedent that can be raised or lowered.

 

U.S. Obsessions & Deeper Goals

Currently, many believe that the U.S. faces a product trade deficit because of the decline in manufacturing. However, U.S. manufacturing strength is not weak. In fact, the so-called 'hollowing out' of U.S. manufacturing is only evident in labour-intensive industries such as shoe and furniture production, whereas the United States is strong in high-end manufacturing. Moreover, the United States has a huge surplus in the service trade.

Many people agree that the ultimate goal of U.S. foreign economic policy is the “Mar-a-Lago Accord”, the core demands of which have gradually evolved into five specific claims.

Firstly, the U.S. has put forward these claims due to its financial difficulties. Secondly, the United States is demanding that other countries open their markets to American goods. Thirdly, the United States is calling on other countries to increase their defence spending and purchase US weapons and equipment. Fourth, the United States is calling on other countries to invest in and build factories in the United States. Fifthly, it hopes that other countries will provide financial support by writing cheques directly to its Treasury.

This suggests to us that the current U.S. administration's policy goal is to reshape the global economic landscape by adjusting the currency exchange rate system and the cost system rather than limiting itself to adjustments at product trade level.

 

China's Response Strategy

How should we respond to the current situation?

First, uncertainty will remain a key feature of US economic and trade policies towards China, and this is likely to persist beyond 2028. Therefore, we must prepare for the long term.

Second, China should continue to prioritize people-centred development. To safeguard employment stability, we must demonstrate our commitment as a great nation to livelihood protection, particularly in terms of medicine supply, by proactively exempting relevant products from tariffs. At the same time, we should open up the medical services sector to foreign investment.

Third, China should continue to respond flexibly to changes in the current situation, bearing in mind the concept of “the world needs China and China needs the world”.

Fourth, China should focus on the long term and endeavour to maintain trade, supply and value chains with all economies, including the United States, thereby contributing to the stability and development of the global economy.