Trump's arbitrary actions will lead to increasingly internal and external pressure on his administration, and such actions cannot sustain for long.
When we look back at the lessons of the Smoot-Hawley Tariff Act of 1930, which triggered a 40% contraction in global trade, we can understand the damages of Trump's trade war policy. A significant increase in tariffs will disrupt the labor division and cooperation in the global supply chain, ultimately dragging down the global economy. It will also lead to inflation in the United States and undermine the government's credibility. This approach, which disregards the interests of the international community, is harmful to both others and the United States itself. International and domestic oppositions will continue to grow. We doubt that the tariff bullying can last for any time longer.
The high import tariff cannot solve the problem of trade deficit, the hollowing out of its manufacturing industry, nor the problem of government debt. On the contrary, it may cause the loss of the confidence on national credibility, and possibly leading to an economic depression.
In 2024, the United States' merchandise trade deficit reached a record high of $1.2 trillion. The root of this phenomenon lies in the excessive issuance of U.S. currency and the long-term accumulation of fiscal deficits. The share of manufacturing in the U.S. GDP has declined from 15.2% in 2000 to 10.9% in 2025. This is due to the expensive labor costs (the average hourly wage in manufacturing is $34.2, six times that of Southeast Asia) and the clustering effect of the industrial chain. High import tariffs cannot help to enhance the competitiveness of American domestic manufacturers, on the contrary, it will increase production costs for domestic enterprises. More dangerously, the credit foundation of U.S. Treasury bonds as a global safe asset is beginning to waver, and this trend may trigger a chain reaction of rising long-term interest rate levels. This policy is pushing the United States into a vicious cycle of "fiscal deficit—inflation—rising interest rates—worsening deficit."
China's countermeasures against tariff bullying stand on the side of pro-globalization and mark China's strategic initiative in the U.S.-China competition.
These countermeasures have broken the previous path dependency of "U.S. pressure—Chinese compromise", which will make US to reassess under the triple constraints of inflationary pressure, midterm election votes, and the attitudes of allies. Other countries who are also being placed with high tariffs, are not able to tolerate. It created opportunities for China's to expand closer economic ties with these countries. While foreign trade data may fluctuate, the value of this strategic initiative cannot be measured by short-term economic indicators.
China has reduced its economic dependence on the United States, actively controlled real estate bubbles, broken through technological bottlenecks, and upgraded its manufacturing industry. These created the confidence for countermeasures.
China's exports to the United States as a percentage of GDP have declined from 4.1% in 2018 to 2.3% in 2025, with the ASEAN and Belt and Road countries showing a significant substitution effect. More importantly, the export structure has shifted from low-value-added products such as clothing and furniture to high-value-added products such as machinery and equipment and electric vehicles. This has fundamentally changed China's bargaining power in the industrial chain. Through policies such as the "three red lines," China has dismantled the financial risks of the real estate industry, reducing the share of real estate investment in GDP to 5.8% in 2025 (12.4% in 2018). At the same time, a new generation of Chinese manufacturers is emerging in the global industrial chain. This technological and industrial upgrading is not only a climb in the position of the industrial chain but also a qualitative change in the global value chain's discourse power.
If the trade war continues to escalate, the relationship between two sides may be intensified. However, during any subsequent easing phase, the stock market is likely to experience a recovery.
On the one hand, we see the uncertainties of the world economy, and on the other hand, there is the certainty of China's economy. We see the volatility of the stock market, but there is also its certainty. The overall valuation of the stock market is relatively low. The dividend yield of the components of the 300 Index has reached 3.5%, which is twice the yield of the 10-year China treasury bonds. The world will not retreat to a state of isolation and segmentation. The United States' policy of shifting the burden to its neighbors is precisely the opportunity for China to advocate for continuity of globalization. When the situation regarding tariff increases and negotiations becomes clear, the stock market is expected to recover.