Whither tariffs?
Tariffs and learning
This morning’s proclamation that Sino-American talks over the weekend lowered tariffs by 110% for a 90-day negotiating period is driving U.S. futures up 800 points as of 0500 this morning. Businesses do not like uncertainty, so they are delighted to see that problem kicked down the line for a while. China and Asia, in general, are happy this particular episode in U.S. foreign policy is on hold for now. Europe also appears hopeful that tariff talks will continue.
Tariffs are a higher cost for consumers, no matter whether you believe they will incentivize businesses to reshore to the United States, or they will be a help in ameliorating trade deficits, or they will penalize those who “cheat” at trade. Consumers seeking the lower-cost goods still produced in the Middle Kingdom dodged a bullet from the 145% level originally announced by the White House. However, tariff threats are still a fundamental component of the administration’s global strategy.
What we don’t see is the objective of that strategy. A couple of possibilities are clear. China’s exports to the United States fell by 21% last month as the fear of stiff tariffs took hold. That fear is now reduced for at least this three-month period, so U.S. imports are likely to rebound. That will worsen the bilateral trade deficit that troubles the White House, but will satisfy businesses and consumers.
Suppose we promoted free trade by showing China’s propensity to protect its industries. In that case, I think it was a mixed bag since we intended to impose far greater tariffs than existed before the negotiations began, even though we ultimately agreed to only 35% tariffs for these ninety days. According to the public statements, we have not forced China to “kneel to us” as Beijing warned before talks began.
This morning, a Chinese author opined the following, which is radically different from our interpretation of events. I recommend looking at the entire column on Substack.com at the link below, but I have excerpted a few paragraphs.
“From the perspective of Chinese exporters, the U.S. market is relatively easy to make money in. Once American buyers place orders, they tend to be large. But that doesn’t mean Chinese businesses depend on the U.S. If Americans no longer want to do business, Chinese firms will decisively seek alternative markets or pivot to domestic demand.
Many overlook that China is the most competitive market economy in the world. In contrast, the U.S. market is highly monopolized, with numerous trade barriers and dominant players reaping excessive profits without regard for real market competition. Chinese companies are accustomed to operating in a high-risk environment where business ups and downs are common. If a venture fails, they shut it down and move on to a new sector. American scholars often observe that Chinese firms constantly complain, struggling with immense pressures, providing endless fodder for pessimists. Yet they also note that Chinese companies are fiercely competitive, often driving out foreign brands with ruthless efficiency.
There remains a systemic misunderstanding of China’s economy among global scholars. For example, the U.S. sanctions on Chinese high-tech sectors have now proven to be a remarkably foolish move—completely contrary to the principles of a market economy. These sanctions have handed China’s tech industries a once-in-a-generation market opportunity, essentially ceding one of the most valuable markets out of sheer short-sightedness.”
Fears of an economic powerhouse in China have multiplied over the past decade. Suppose our goal was to undermine the Chinese economy. In that case, things are more complicated than our bilateral trade numbers with Beijing. Washington’s tariffs affected none other than our consumption since $440 billion in goods from China last year were 13% of U.S. imports. Other countries still buy from China, the primary trading partner for every Asian country and much of the world. China still exports, and we still buy imported goods, whether made in China or elsewhere.
I recently heard a retired senior military official repeat multiple times that “China’s economy tanked.” China’s economy is no longer growing at double-digit rates (if it was ever growing at quite the level Zhongnanhai portrayed, but I am firmly skeptical of any government statistics where transparency is lacking) of a generation ago, but most economists still acknowledge that the PRC economy is growing.
It has not gone into free fall but has returned to a more average experience from the stratosphere of unsustainable growth, as anyone knowing any economic history understood from the beginning. Westerners ignore that Maoist China, a broken post-Great Proletariat Cultural Revolution place, the Second Generation CCP leaders inherited, was sheer poverty (except, of course, for those leaders for whom rules never applied). Growth resulting from massive urbanization and infusions of foreign technology and investment was bound to explode once Mao’s long string of ridiculous personal projects, such as the Great Leap Forward of the late 1950s, ended.
As a CCP-driven economy, Xi Jinping is willing to boost the economy to generate jobs. He is not proving successful at encouraging marriage or children, but his efforts to keep the economy humming along at a passable growth rate are obvious. This employment may be the only benefit for many Chinese of a paranoid, dictatorial regime that does not want more unemployed people.
The crux of President Trump’s original argument was that tariffs would bring companies home, thus creating more jobs for Americans. Indeed, some companies have built facilities in this country, often with the lure of local and state tax incentives. However, I am not sure how many jobs they are creating because so many new production plants are exceptionally high tech, with AI only assuring greater use in the future. The jobs, products, and path ahead appear to diverge from a domestic population less educated and less capable of operating in this rapidly changing environment.
We need to emphasize education and facility with technology. Educational achievement plummeted for elementary school children during the pandemic, with no sign of recovery, but this is part of a decades-long trajectory. Oddly, we remain uninterested in the implications, precisely at a time when we are raising obstacles for international students eager to learn from our top institutions of higher education.
It’s unclear where this will all lead, but some trends definitely contradict one another. No American—none, regardless of political rhetoric to the contrary—wants us to fail. Still, we are pursuing a comprehensive approach to job creation in this country, which is perplexing.
I welcome your thoughts on tariffs, China’s future, and anything else you care to discuss in Actions Create Consequences. Perhaps you have a different take on some of these questions, so please chime in.
I appreciate your time this morning. I especially thank those who subscribe financially at $8 a month or $55 for a year of Actions Create Consequences as those contributions allow me to explore sources I could otherwise not afford.
Have a great week. Be well and be safe. FIN
AFP, “Trump drops the hammer on tariffs. Top quotes from his speech”, CNBCTV18.com, 3 April 2025, retrieved at https://www.cnbctv18.com/world/trump-top-quotes-from-his-speech-on-tariffs-19583508.htm
Ben Chu, “What does Trump’s tariff pause mean for global trade?”, bbc.com, 10 April 2025, retrieved at https://www.bbc.com/news/articles/cz95589ey9yo
“China and U.S. reach a deal. What’s next?”, ChinaAcademyNewsletter.Substack.com, 12 May 2025, retrieved at
Chun Han Wang, “In Vivid Video, Beijing Vows not to ‘Kneel Down’ to Washington”, wsj.com, 29 April 2025, retrieved at https://www.wsj.com/world/china/in-vivid-video-beijing-vows-not-to-kneel-down-to-washington-b010c146?mod=china_more_article_pos14
Rachel Minkin, “About Half of Americans Say public K-12 education is going in the wrong direction”, PewResearch.org, 4 April 2024, retrieved at https://www.pewresearch.org/short-reads/2024/04/04/about-half-of-americans-say-public-k-12-education-is-going-in-the-wrong-direction/
Rebecca Feng and Jason Douglas, “How Bad is China’s Economy? The Data Needed to Answer is Vanishing”, wsj.com, 4 May 2025, retrieved at https://www.wsj.com/world/china/china-economy-data-missing-096cac9a?mod=china_more_article_pos5
“Xi Jinping to China’s women: Marry early, have children, retire late”, Youtube.com, 2024, retrieved at