U.S. President-Elect Donald Trump expressed on Dec.16 that, the U.S. and China together can solve all the problems of the world. The next day, he changed his tough tone on high tariffs on China by saying that tariffs should be reciprocal.
We have to wait until after Trump enters the White House again on Jan. 20 before ascertaining his actual policies and measures on China, but the recent remarks are more constructive. Since he holds that China and the U.S. can solve all the problems in the world, both governments should work together to find proper solutions to the problems in bilateral relations. A stable, constructive relationship between the world’s two largest economies is vital to the future of the globe.
It is highly recommended that the Chinese government and the Trump administration continue the current high-level bilateral dialogue mechanism — even advancing to a higher strategic level, and simultaneously to a more pragmatic down-to-earth level.
At the strategic level, both governments need to find common ground — peaceful coexistence based on the principles of the UN charter. Both countries should respect each other’s sovereignty and territorial integrity. The U.S. side should respect that Taiwan is a part of sovereign China. Neither should interfere in the other’s internal affairs. China does not challenge the U.S. social system and policies, nor should the U.S. challenge the Chinese political and social system and economic development. China does not challenge the U.S. dominant roles in world affairs, nor should the U.S. contain China as a strategic adversary.
On the basis of mutual respect, both governments should explore the infinite chances for economic and technological cooperation to maximize mutual benefits.
In hindsight, lessons can be found for seeking a more constructive approach to key bilateral economic and trade issues.
No unilateral solutions
Unilateral tariffs on Chinese goods are no solution. Before his most recent remarks, Trump repeated again and again his pledge to impose 60 percent tariffs on all imports from China. This is a repetition of the failed tariffs imposed during his first term.
During 2018-19, Trump did impose 10-25 percent unilateral tariffs on more than $370 billion of Chinese goods. This caused heavy damage to both China and the United States. China lost her long position as the largest supplier to the U.S. and slipped to fourth by 2022, after Mexico, Canada and EU. As China resolutely imposed counter-tariffs on imports from the U.S., American exports to China also suffered heavily. The U.S. lost $11.6 billion in sales of agricultural products to China, with soybean sales down 79 percent. The unilateral tariffs also cost 0.5 percentage points of U.S. GDP during 2018-19, and added $88 billion to the American family burden, thus aggravating inflation,
On the other hand, the decline in Chinese exports to the U.S. was only temporary. By 2021, they surpassed the pre-tariff high of 2018 by more than 20 percent. Official U.S. data show that Chinese exports to the U.S. in 2022 hit a historic high. The new decline happened since September 2022 — again, mostly because of factors other than tariffs, including world geoeconomic fragmentation and the Biden administration’s “small yard, high fence” policy. Even so, Chinese exports to the U.S. picked up again during 2024.
Considering the yuan depreciation to the dollar during the past year, Chinese exports to the U.S. reached 336.5 billion yuan in November, annualized at 4.04 trillion for 2024 — already 4.3 percent higher than the historical high of 3.87 trillion for all of 2022.
The decline of Chinese exports to the U.S. has not caused a decline in Chinese global exports. Because of the market diversion during the years 2018-23, the U.S. share in China’s global trade fell by 2.5 percentage points, behind only ASEAN, which increased its share by 2.7 percentage points, easily seizing the market share yielded by the U.S.
Meanwhile, the share of the EU and UK combined remained unchanged at 14.8 percent. The cumulative growth of Chinese global exports was 36.3 percent in dollar terms, faster than its cumulative GDP growth of 28.1 percent. The Chinese export share in total world merchandise trade actually increased from 12.9 percent in 2019 to 14.2 in 2023.
If new, higher tariffs are imposed during Trump 2.0, China will certainly retaliate with tariffs on U.S. imports. Hence both China and the U.S. will again suffer. Morgan Stanley estimates that China’s GDP will shed 0.8 percentage points during 2025-26, while the Oxford Institute of Economics puts the U.S. loss at $1.9 trillion of GDP and 801,000 jobs. There will be no winner.
Chips and high-tech decoupling are no solution either. The recent escalation by the Biden administration of restrictions on semiconductors, AI and the quantum telecom technology supply to China is only a continuation of Trump 1.0 policies. However, facts have proved it both harmful and ineffective.
None of this has effectively stopped the China chip industry or export growth. During the 2018-23 period, Chinese chip output increased by 102.2 percent and its exports jumped by 60.7 percent. As a direct response to the Washington chip ban escalation, the Chinese Semiconductor Industry Association has recommended a refusal to import chips from the U.S. — which will be fatal for the U.S. chip industry. As China accounts for one-third of the global chip market (with the share likely to rise to 40 percent before 2030), the loss of the China market will mean, first, that the U.S. will no longer be the world largest chip provider. Second, the U.S. will no longer be able to sustain its dominance in world semiconductor technology.
Further, China has announced strict export controls to the U.S. on germanium, gallium and antimony, all indispensable in the semiconductor and AI industries. This means that both China and the U.S. are interrelated in the AI semiconductor supply chain. The unilateral chip and high-tech decoupling policy by Washington is both wrong and self-destructive, and thus unsustainable.
Three recommendations
• First, an ad hoc joint trade working group should be set up, at the government and business levels, to examine current bilateral trade by category and to identify the key concerns of each side and practical ways to stabilize further growth without resorting to extra tariffs. For instance, with encouragement of Chinese green field investment in iron and steel, the automotive industry in the U.S. rust-belt may generate more manufacturing and jobs, and a significant increase of energy trade could meet market needs.
• Second, the above-mentioned working group also covers the China-U.S. high-tech supply chain, especially in semiconductors, artificial intelligence, quantum information and telecom, to restrain and gradually reduce high-tech restrictions on the U.S. side — and the key strategic minerals restrictions on the Chinese side — and explore new potentials for cooperation, so as to reset bilateral relations on high-tech trade and investment, to minimize the concerns and maximize the benefits on both sides.
• Third, in light of the renewed China-U.S. Science and Technology Cooperation Agreement, an ad hoc joint working group on future industries should be set up to explore joint efforts to drive the world’s new industrial revolution, based on AI and big data.
The U.S. is leading the race for the world’s future industry, and China is moving fast. The Hurun Unicom List 2024 shows that, of 1,453 world-leading companies, the U.S. accounted for 703, or close to half the total, while China had 340 — both far ahead of European countries (116 for the United Kingdom, France and Germany combined). China and the U.S. should go beyond their differences and work together to advance global industry and offer even greater joint contributions — finding new ways to secure a peaceful, mutually beneficial relationship.
