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Perspectives: China trade – navigating protectionism
546 Plays26 days ago
Jing Liu, Chief Economist, Greater China, HSBC Global Investment Research, speaks with Professor Xinquan Tu, Dean and Professor, China Institute for WTO Studies, University of International Business and Economics, to explore the evolving dynamics of trade policies, tariff impacts, and the delicate balance between decoupling and collaboration.
This episode was recorded on the sidelines of HSBC’s 12th Annual China Conference in Shenzhen on 1 September 2025.
Disclaimer: Views of external guest speakers do not represent those of HSBC.
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Transcript
Introduction to HSBC Global Viewpoint
00:00:00
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:12
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
US-China Relations Overview
00:00:22
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Welcome to HSBC Perspective Series. My name is Jing Liu, HSBC Global Investment Research Chief China Economist, and I'm very pleased to be joined by Professor Tu Xingquan, Dean of the China WTO Studies, ah University of International Business and Economics.
00:00:43
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Professor Tu, thanks again for joining me today. My pleasure. I just wonder, um now we have been several months after the ah shock of the April 2nd Liberation Day, and the US-China relationship seemed to go through dramatic ups and downs.
00:01:01
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We have the elevated April tariff, and then now we have ah another 90-day truth. So what do you see will happen um several months from now?
US-China Deal Speculations
00:01:14
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So I think ah the two sides have realized that the total decoupling is not possible, at least for now. So they still need each other or they still have to depend on each other.
00:01:27
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So I think it is a very possible to for the two sides to reach a deal. ah But of this deal, I think it will be very different from other deals made by the US with other trading partners.
00:01:40
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ah one One important difference is ah ah China also will impose additional tariffs on the US. So it's unlike other deals that the US will have unilateral tariffs on others, but to others,
00:01:55
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actually will even give more recessions to the to the US. ah So that's one difference. Indeed, reciprocal. ah Yeah, that's indeed reciprocal.
Tariffs Comparison and Strategic Goals
00:02:09
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Another thing is, ah i'm I'm afraid that the tariffs, the US tariffs on China will still be higher than tariffs, U.S. tariffs on the others.
00:02:20
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Because ah right now the U.S. actually has a kind of a tiered tariff regime. And China, of course, is the most important target for U.S. tariffs. So if tariffs on China are same as others,
00:02:34
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then the U.S. cannot achieve its ah goal to kind of move China out of this so-called U.S. supply chains. so ah So as I said, although there could be a deal, but tariffs on China will still be higher than the others. how does that compare to the current tariff? Because according to our calculation, we have around 20% under ah trump one point zero 10% universal tariff and another 20% of ah the fentanyl related tariff. So right now it's around 50%. And recently, um the US Chair Secretary Benson said that the status quo works quite well.
00:03:18
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And if something is working, um don't break it. So does that mean ah the 50% might be the terminal tariff US imposes on China? um I think it is still hopeful that the the two sides could ah ah have a kind of deal on the fentanyl tariffs because ah China is trying hard actually to control or to deal with the fentanyl issue.
00:03:43
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and And actually, China already has adopted a number of measures to deal with it. and the two sides are still negotiating on this issue. issue So if the two sides can find a solution about this issue, then the 20% fentanyl tariff could it be reduced or eliminated.
00:04:03
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ah But in my opinion, or my guess is that ah even though the tariffs could be reduced or eliminated, ah But the final tariff, as I said, the final tariff on China will be still higher 30%.
00:04:20
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they thirty percent So because as you said, ah right now it's 50%. If 20% is reduced, then it would be
Global Supply Chain Reorganization
00:04:28
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30%. I don't think this 30% would be satisfied to the US. That's lower than the Switzerland tariff. As you said, do it's even lower than then ah Switzerland and also ah like ah like a Canada. India. India is 25%.
00:04:46
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and Another 25% kicking. Yeah, yeah. But that could be negotiated away. even though the two sides could make a deal on fentanyl, and the US will find other ways to increase sector tariff here and there.
00:04:59
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And I think actually um in terms of international competition, the US, as you said, the US has imposed a lot of sectoral tariffs, many significant ah ah sectors.
00:05:12
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it's even more important than the so-called reciprocal tariffs to some extent and because ah these sectors are and very as i said a very important for the u.s and also ah for many other trading partners like auto like a semiconductor steel so so actually they are more important than the average reciprocal tariffs So we talk about ah the potential impact on global supply chain.
00:05:43
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um Do you think, um you know, after the dust settled, um what kind of changes we might observe in the global supply chain? Is that the US intention to maybe remove China from the ah from its own supply chain for the sectors that US probably deems ah very important?
00:06:04
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um I think the purpose of the U.S. tariff war is to move ah manufacturing back to the U.S.
Shift Toward Domestic Manufacturing
00:06:13
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So in comparison to the U.S.-Japan trade war in 1980s, actually at that time, the impact was that the supply chains were moved to other Asian countries, and especially in Southeast Asia and also other East Asian countries, including China later.
00:06:32
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ah But now this this time is a little different. and The purpose of the US is move ah supply chains back to the US and the the US imposed tariffs on almost all countries.
00:06:44
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So then this kind of tariff difference ah between China and others and also among others, and will have very complicated impact.
00:06:55
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It's not so straightforward. It's unlike, as I said, in the US-Japan trade war. so And also it depends on different sectors ah because in different sectors, this tariff gap is also different.
00:07:14
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So I think ah that the world will see a kind of very complicated ah ah reorganization of the global supply chains. and And especially the US is much more protect protective than in So think one important so i think ah one important ah change is of course ah the supply chains to the us will be changed another thing is i think ah ah the global supply chains to some extent will move out of the us and re be organized reorganized among other countries ah so for now as i said that the us is kind of
00:07:58
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isolated from the rest of the world. So you're saying maybe we will in the future see in US for US type of supply chain and then some ah reorganization of supply chains outside of the
US-China Investment Opportunities
00:08:10
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US.
00:08:10
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um That's very interesting because when I talk to our um ah corporate clients, some of them mention um they actually feel impractical if um let's say they move their supply chain somewhere in a third party country and several years down the road there could be change on tariff again.
00:08:30
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It's just impractical for them to restructure the supply chain ah every several years. So maybe they will have to bring back the manufacturing ah to the US. So if that's the case, do you think in the US-China potential deal there could be something on the investment.
00:08:48
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Actually, in my opinion, and also, i think on the China side, we believe that a more investment flows between the two countries will be helpful to deal with trade issues.
00:09:01
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especially if if china can if Chinese companies can invest more in the US, it could reduce China's export direct exports to the US and the reduce trading balance.
00:09:15
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But to for now, it seems that very, very difficult. I think the the major issue is on the US or in in the US eyes, competition between US and China is strategic.
00:09:29
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that not about industrial competition, it's more than industrial competition. So they have more security or strategic considerations about China's investments.
00:09:40
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So it's say it's a very, very difficult. And maybe a bit away from ah the China-US relationship and talk about the China relationship with other countries, we have seen this trade protectionism probably ah fair to say on the rise because we see the pushback from other trading partners um citing concerns on China's excess capacity in some sectors.
00:10:05
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um So
Trade Protectionism and China's Challenges
00:10:06
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how do you see China's relationship with other trading partners? Actually this kind of, ah we call it a domino effect of trade protectionism has happened before.
00:10:17
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ah Like ah the US impose anti-dumping tariffs on Chinese products and Chinese companies go to other markets and other markets will also impose tariffs on Chinese products.
00:10:31
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in In some sectors it already happened actually before. But right now, maybe the scale is larger and because the US imposed ah tariffs on almost all Chinese products.
00:10:42
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ah So some countries are afraid of so-called trade diversion effect. To some extent, it will happen, of course, right? Chinese companies cannot export to the US and they will try to export to other markets.
00:10:54
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So it will happen. And I think that the major problem for now is, especially like for the for the Europe, ah right now, Chinese companies are competing with them in those so-called strategically important sectors.
00:11:08
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So it's not ah only trade issue, it's actually a competition issue. that's right Because the Chinese companies are more competitive, then they will take seriously.
00:11:21
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and But again, as I said, i think this kind of trade conflict, the better solution is to increase. investment, even bilateral two way investments.
00:11:32
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Actually, right now, you know, some European companies, car companies, right, are investing more actually in China. Yes, because ah China has some advantage in in some areas.
00:11:44
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Yeah, you reminded me that several years ago, China and the EU almost signed a deal on investment. but Is that possible they can renew the negotiation on that?
00:11:57
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yeah Yeah, it is very ah big pity actually that ah the two sides, ah yeah, reached a deal but they ignore it later, didn't ratify it.
00:12:08
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It is a very big pity. ah If ah if ah that agreement was ah implemented, it would be much better situation for now. But right now, I think the situation has changed.
00:12:21
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So some conditions, some terms in the agreement maybe are not ah good enough. I mean, there are many changes. So ah on on the China side or on the EU side, they maybe they will have new requests or new demands on each other.
00:12:41
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So for now, I think, in my opinion, the better way is to make a new deal, including both trader investment. Actually investment only is not enough, not good enough.
00:12:55
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At that time, as I said, trading balance is not so significant, but now it's ah more and more important or more serious. So the two sides will have new thoughts So ah you need to combine trade and investment.
00:13:11
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Some good
China's Domestic Consumption Focus
00:13:12
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efforts. Yes. Trying to make a win-win situation at least. um I see that China is adjusting its ah domestic policy as well. Like there's a much more focus on stimulating the domestic consumption and also this so-called anti-involution campaign, which, um i mean, to me sounds like something we observed several years ago, supply-side reform.
00:13:37
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I remember in 2015, there was also the concern globally about China's overcapacity in steel and a coal industry, and China ended up cutting the capacity ah very aggressively.
00:13:52
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Do you see China make similar effort this time around? Actually in China, this kind of overproduction, overcapacity will happen periodically actually. So part of the business cycle, but in China probably even more.
00:14:08
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Yeah, yeah and it's a it a business ah cycle with Chinese characteristics. But this time i i think it's a little different. ah One thing is, ah I would say this round of overcapacity or overproduction at least the one reason is is due to u.s china trade war especially since 19 2018 the imposed a lot of export controls so china is very concerned about this kind of problem so since then we really adopted so-called a dual circulation strategy
00:14:47
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I think its focus is on the production side, on the supply side. We try to meet, try to deal with so-called shortcomings in the supply side.
00:14:59
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um So we invest a lot, especially in the manufacturing sector. Of course, another issue is the housing market here has been declining. and So then more investments go to manufacturing.
00:15:12
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So then we we got ah this problem of overproduction right now. Of course, this time, maybe it's it's a little more difficult ah because as I said, ah the real estate sector is not only investment, but also consumption.
00:15:30
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But now this market is declining. So we are lack of this big part of consumption. Then we have to stimulate it other domestic consumption. But, you know, I think China has kind of long tradition of saving money, not a spending money.
00:15:49
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And also there are also some other restrictions, especially in the public sector, we tend to save money again, right? We tend to control consumption.
00:16:00
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So it would be ah more more difficult. So I think for now, we at least that we need a kind of transformation of minds.
Global Trade and Investment Deals Speculation
00:16:12
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So in an ideal situation, China try to rebalance from the production focus to consumption focus, and ah China can become a much bigger ah consumer and that could help deal with the trading balance to some extent.
00:16:28
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And ideally China, US, China, EU can sign some comprehensive deal covering trade and investment. And then we probably end up with a much better place than we are now.
00:16:41
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Hopefully. Yeah. But um in your view, are we at sort of the end of the globalization re-globalization and going forward? What's your basically prediction?
Future of Globalization Predictions
00:16:57
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Yeah, I think there will be at least different kind of globalization, right? Of course, ah the globalization was and stimulated by organized, actually guided by by the US or led by the US.
00:17:13
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ah But now the US is trying to isolate itself from the rest of the world. Of course, not not fully, and like in the digital sector or in the financial sector, the US is still the leader of the world.
00:17:26
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But ah in in the in the manufacturing sector, at least, the US is going back to isolation. ah But I think among others, um they still believe in globalization or believe trade globalization.
00:17:41
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So right now, as I know, the US has decided to refuse pay money to the WTO. So basically the US is actually ah exiting from the WTO, but other WTO members still support the WTO.
00:17:58
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They still support the MFN principle. ah So, of course, because of the their bilateral treat deals with the US, there will be some kind of damage to the MFM principle. But basically, basically I think they will stick to the MFM treatment.
00:18:17
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So then among them, there is still globalization. There are still WTO rules. ah All these trade liberalization commitments and rules will be ah implemented.
00:18:30
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So in this sense, ah I think globalization will persist. But of course, I don't know whether or when the US will come back. But I think we are economists.
00:18:41
Speaker
So we believe in the principle of economics comparative advantage and free trade will work always right maybe and not perfectly but it will finally work yeah that's a gravity right yeah hopefully yes thank you very much professor Tu that's a very fruitful discussion and thank you everyone for listening and watching our podcast Thank you for joining us at HSBC Global Viewpoint.
00:19:10
Speaker
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