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China’s Economic Strategies Amidst U.S. Tariffs
Reports indicate that Chinese officials are contemplating a fresh round of stimulus measures in response to tariffs imposed by the United States, as highlighted by Bloomberg. This potential action is taking shape against a backdrop of escalating concerns about a full-blown trade conflict, which has significantly unsettled global markets. Notably, on Monday, Hong Kong’s Hang Seng index experienced its steepest decline since 1997, underscoring the growing unease among investors.
To gain more insights, we turn to Leland Miller, co-founder and CEO of the China Beige Book. Leland, thank you for joining us.
Looking at the current climate, how do you see China responding to U.S. actions regarding tariffs?
Leland Miller: It’s not so much about a pro or negative deal; rather, this is a typical pre-negotiation phase. Increased U.S. tariffs were anticipated as a bargaining tool to incentivize Beijing’s compliance with American demands. While this escalation of tariffs was more significant than what markets had predicted, the reaction from China was unexpected. Their response, designed to appear reciprocal, hit various sectors, including tariffs. Nonetheless, this scenario does not necessarily indicate the feasibility of a phase two deal; it illustrates that China will soon become a pivotal player in this tariff-related narrative.
China holds several options available to them, including retaliation, compliance, currency devaluation, or introducing stimulus measures—or a combination thereof. Which path do you foresee China potentially taking?
Leland Miller: The course of action will be dictated by the evolving situation. Over recent months, China has been preparing to deploy larger fiscal stimulus if the circumstances warrant such a move. Additionally, monetary stimulus is already underway and may be intensified. However, there’s a cautious approach; China’s recent data suggests that transport construction firms—important indicators of infrastructure spending—have started increasing their borrowing rates. Yet, the actual implementation of any significant measures will depend on how the external economic landscape unfolds.
Additionally, there’s a growing discourse around whether this tension could compel China to shift its economic model from being heavily reliant on exports to a more consumption-driven framework. What are your thoughts on this potential transformation?
Leland Miller: I find that narrative unsubstantiated. The talk of transforming from an investment-based economy to one driven by consumption has persisted for a decade, yet substantial evidence supporting such a shift is lacking. Should ongoing tariffs persist, China may indeed need to adjust its economic approach, but this would likely mean redirecting its overproduction to other global markets rather than pivoting to a consumption-based model. If the U.S. reduces its intake, we can expect China to significantly enhance exports to Europe and other regions. The Chinese leadership has been clear about their intentions to maintain high productivity levels and compete vigorously in global manufacturing, especially in emerging industrial sectors.
With that in mind, to what extent do you believe China is willing to address its trade surplus, considering this is a primary aim of the U.S. tariffs?
Leland Miller: If the U.S. administration’s demands revolve solely around increasing purchases of American goods, China would likely be receptive to that arrangement. It’s a pragmatic approach that could superficially narrow the trade deficit without necessitating extensive reforms. However, whether the Trump administration would accept such a straightforward deal remains uncertain. There has to be a more detailed set of expectations from Washington before we can fairly assess the prospects for a deal.
Thank you for your insights today, Leland. We appreciate you sharing your perspectives on this complex situation.
Leland Miller: My pleasure, thank you for having me.
Source
finance.yahoo.com