Commentary by Sen Nieh, Center Fellow
US-China Tariff War
On April 2, “Liberation Day,” the U.S. imposed different reciprocal tariffs on all countries around the globe. China was hit with a 34% tariff to offset trade deficits and an additional 20% aimed at fentanyl-related imports, totaling a 54% tariff. More than 100 countries expressed their willingness to negotiate one-on-one with the U.S. on tariffs and trade (Just yesterday, the UK successfully concluded its own tariff agreement with the U.S.), but only one country, China, chose to retaliate against the U.S. with elevated tariffs. On April 9, the U.S. postponed global tariffs for 90 days for all countries except for China, whose tariffs were escalated to 145% in re-retaliation. In this new round of the tariff war between the U.S. and China, the CCP declared it would “fight to the end,” insisting that “China will not kneel.” With a few exemptions, the U.S. raised tariffs on all Chinese goods to 145%, and in some cases as high as 245%. These rates have remained in effect for several weeks. At the same time, China has imposed a 125% retaliatory tariff on U.S. goods. Although there were several under-the-table, mid-level contacts and discussions about specific goods, the official dialogue or meeting between top leaders of two countries was interrupted and stopped.
On May 8, the CCP quietly lifted tariffs on 131 categories of U.S. goods — including certain drugs, industrial chemicals like ethane, healthcare products from Germany and Italy, eight types of analog microchips, and aircraft engine parts and services. These goods, worth roughly $40 billion, represented 24% —nearly a quarter — of all Chinese imports from the U.S. in 2024.
Today, May 10, at the same time of our Roundtable Panel, in a third country, Switzerland, our Secretary of the Treasury, Scott Bessent, and the Trade Representative, Jamieson Greer, are holding face-to-face tariff talks with a team led by He Lifeng, the highest economic official and Vice-Premier of China. As this first high-level meeting unfolds, it’s unclear whether it will proceed smoothly, what specific tariffs will be discussed, or what the outcome might be. President Trump said earlier that imposing an 80% tariff on Chinese products “looks good.” Bessant also commented: “My sense is this will be about de-escalation. We’ve got to de-escalate before we can move forward.” The U.S. has 18 important trading partners and is currently negotiating with 17 of these countries. China is the only exception. Though the results are uncertain, Reuters has reported that this round may focus mainly on technical issues, such as tariff structure, export controls, and “micro-duty exemption” policies, etc.
Impacts of the tariff war on the U.S.:
The tariff war between the U.S. and China has gone as high as 145%, which basically means a trade embargo and interruption with China. What impact will this have on the two countries? Everyone knows that it is a buyer’s market, and in a global buyer’s market, the U.S. has been largely unaffected by China’s 125% retaliatory tariffs. On the contrary, in less than a month, it has generated tariff revenue of $15 billion from Chinese goods.
Take Boeing as an example: “In retaliation, Xi Jinping ordered Chinese airlines to stop accepting Boeing parts and services, and to cancel 150 pending orders. But the move backfired. Countries like Malaysia, India, and Saudi Arabia quickly expressed interest in buying the canceled planes — which they’d now receive years earlier than expected. Boeing’s stock price even rose on the news. Meanwhile, China lacks the domestic capability to manufacture many key components and will likely need Boeing’s support regardless. The CCP’s retaliation, in this case, amounts to shooting itself in the foot.”
Impacts of the tariff war on China’s Economy and Unemployment:
At the end of April, the latest economic data released by the Chinese government showed that the trade war had caused a heavy blow to China’s economy, with exports falling and factory activity falling to its lowest level in a year. The April “Manufacturing” Purchasing Managers’ Index (PMI) fell back to 49, and the new export order index fell from 49.0 in March to 44.7 in April, hitting a new low. The service and construction industries were not spared. The April non-manufacturing PMI fell too. In Yiwu, Zhejiang — China’s largest hub for small commodity exports — many companies are collapsing. Local cross-border e-commerce and logistics firms have seen shipments drop by 50 to 70%. There are frequent reports of factory layoffs, shutdowns, and bankruptcies. At the same time, labor disputes continue in various places. Strike waves for wage demands broke out in Hunan, Sichuan, Chongqing and other places. Many business owners have run out of funds and cannot pay wages, simply saying, “I’d rather go to jail than keep operating,” due to their inability to pay wages.
In 2023, the unemployment rate of Chinese youth exceeded 21%. Professor Zhang Dandan of Economics at Beijing University (the Harvard of China), said that the real youth unemployment rate in China may be as high as 47%. Right after that, the National Bureau of Statistics of China revised the data and improved the statistical method. Then, the youth unemployment rate magically decreased to 14.9%. The youth unemployment rate has already been very high in the last two years. But, this June, more than 12 million college students will graduate and want to enter the workplace. If high tariffs continue and trans-Pacific trade activities plummet, leading to stagnation of Chinese production, up to 20 million people may be unemployed. Lu Ting, Nomura’s chief economist focusing on China, also predicts that high U.S. tariffs will cause China to lose 15.8 million jobs. This does not include more than 100 million temporary workers who work in various places for shorter periods. Many of these temporary workers are waiting for employment at the gate of factories and companies. They will not be counted in the official unemployment data. Since 2023, the National Bureau of Statistics of China has deleted relevant data on the number of unemployment in urban areas.
Data Deletion Conceals the True Picture of the Poor Economy:
In recent years, the CCP has quietly removed numerous official statistics from public view. The CCP has stopped publishing hundreds of economic and social data that were originally open to the outside world: from land transfers, foreign investment inflow, to unemployment rates, cremation data, and even soy sauce production reports have disappeared. The CCP does not want the outside world to see the difficulties it faces, and this is the way they hide them. Scholars have begun to turn to other “alternative indicators”. For example: satellite luminous maps, cement sales, news about gyms and beauty salons closing down, and even mobile data on Baidu Maps are used to measure the true situation of China’s economy.
One economist has been assessing the health of China’s service industry by counting the number of news reports about gym and beauty salon owners suddenly closing down and running away with user membership fees. He said this is much more accurate than looking at GDP data. Real estate was once the engine of China’s economy, but in recent years, the avalanche of bankruptcies in the real estate industry has dealt a fatal blow to local finances, and various real estate data have gradually disappeared.
I remember in 2007, the former Premier, Li Keqiang, then-secretary of the Liaoning Provincial Party Committee, told our Ambassador to China that China’s GDP was only a “reference number” and that he believed more in electricity consumption, railway freight volume and loan data. In December 2023, Gao Shanwen, the chief economist of SDIC Securities, pointed out in a speech in Washington that China’s actual economic growth was “not 5.x%, rather probably only 2%”, and he was subsequently silenced by the authorities.
During the COVID-19 pandemic, when people wanted to estimate the number of deaths in Mainland China, they found that the official cremation data had disappeared since the end of 2022. Also missing were vaccination statistics, the number of new investors in the stock market, and even the production of soy sauce.
Although these data are already false figures covered up by the CCP, the real situation is even worse. However, at a time of economic turmoil, changing minds, and internal and external difficulties, the CCP’s ostrich policy of hiding data has become a way of “preventive governance”. In addition to misleading and making everything look good for the ruling class and the general public, this can only further accelerate the coming collapse of CCP.
In summary, the U.S. tariff war against China has been going on for more than a month, and the CCP has declared that it will “fight to the end.” President Trump said that the global tariff war has reduced the U.S. annual trade losses by nearly $1 trillion and has saved a trade deficit of $300 billion with China. On the other hand, the tariff war is very unfavorable to China, which is an economic entity supported by exports of huge trade volume. Its dependence on the U.S. market is far greater than the U.S.’s dependence on China. The CCP cannot fight a protracted war. It is just “tough talk,” and they cannot win.