Mike Tyson’s most dangerous combo was a right hook to his opponent’s left kidney followed by a snap uppercut to the chin. Correctly executed, the right hook to the body momentarily stuns the opponent causing him to double over, exposing the chin to the uppercut follow-up.
China just went big, implementing a 34% across-the-board tariff on imports from the US, export restrictions on a range of rare earth minerals and sanctions on 11 American companies. Mike Tyson has just delivered a right hook to the body.
China also went first. A parade of economies, Vietnam most publicly, has been making calls to the White House to negotiate away crippling tariffs. The pusillanimous strategy would have been to wait and see.
If China’s strategy were to salvage as much trade as possible, a wait-and-see strategy would be appropriate. The whole world would be jockeying for advantage as everyone takes cues from everyone else and winds up with similarly lousy deals, namely large reductions in tariffs and/or commitments to purchase sizeable quantities of American goods.
By going out big with a retaliatory tariff, China signaled that it is not trying to meet President Donald Trump halfway. Mike Tyson wants to brawl and is going for a knockout.
Only China (maybe the EU, but come on, who’re we kidding?) can go big. If China had waited, many smaller economies would have capitulated, forcing China to either match or twist in the wind – retaliation at that point would be pointless and self-isolating.
By going out first and going out strong, China just improved everyone’s negotiating position. Now, smaller economies (and the EU, e.g. Airbus) know China will not undercut them in negotiations. Going out early provides cover for other economies to drive a harder bargain, magnifying the impact of China’s retaliatory body blow.
Previously, Han Feizi lamented the tragic political economy that prevented America from reindustrializing, writing:
Reversing globalization would involve a massive derating of US asset prices as sales to foreign buyers are artificially restricted. Effects on GDP could theoretically be contained, but the wealthy would have to become poorer in hopes of bringing low-income folks back into the middle class as investment bankers become process engineers and Uber drivers become factory workers.
For a political economy that couldn’t figure out a mechanism to pay them off as globalization created immense riches, how likely is it that the immensely rich will stomach becoming significantly poorer?
Evidently, Han Feizi underestimated President Trump’s stomach for chaos. On many levels, we should all applaud Trump. He has blown a hole right through America’s tragic political economy and threw rich people under the bus – something no president, Democrat nor Republican, has had the cajones to do.
Unfortunately, these tariffs are a confused muck-up and will leave the US a much reduced economic power. It is unclear what the Trump administration is trying to accomplish. Is he trying to raise revenue, reindustrialize America or strong-arm trade partners?
The entire rollout, from the Mickey Mouse tariff formula to slapping tariffs on penguin-inhabited islands, was an embarrassment. We will not belabor what a dumpster fire this ill-conceived expression of Trump’s 1980s “Japan is eating our lunch” mind rot this all is and instead focus on what China and the rest of the world can do in response.
The US ran a US$1.2 trillion trade deficit in 2024 on $4.1 trillion in imports. Han Feizi is of the belief that there is no such thing as unbalanced trade – by definition. That’s why it is called “trade” and not “robbery” or “theft.”
The world sold more goods to the US than it purchased. The world didn’t supply these excess goods out of the kindness of their hearts. Nor did they get bamboozled into accepting worthless paper from the printing presses of the US Federal Reserve.
The world made up the difference by accepting American assets in lieu of goods. Paper currency and US government debt are just claims on American assets. And foreigners have been claiming American assets. About 40% of the market cap of US stocks is now held by foreigners – up from less than 5% in 1965.
The greatest event in economic history was the opening of the North American continent for capitalist exploitation. The US has always traded assets for labor, whether through settler colonialism, pioneers, slavery, immigration or trade.
The political economy of America’s asset and labor allocation has made trade “deficits” all but unavoidable. What should have been avoided was concentrating the spoils of this assets-for-goods business model in so few hands.
Trump has just implemented import tariffs which rends asunder this assets-for-goods business model. Unfortunately, America is short $1.2 trillion per annum of goods production and conjuring up much capacity domestically is highly unlikely in the short term.
The rest of the world, however, is presented with a different but altogether more favorable conundrum. Goods, formerly exchanged for American assets, will now have to be exchanged for other goods, the productive capacity of which already exists.
China, to nobody’s surprise, is a major manufacturer of bass boats. The non-American market for bass boats is essentially zero. It should be far less costly to convert bass boat production to other products (scooters, jet skis, flying cars, who knows?) than to build the capacity from scratch in the US — the factories, engineers, machinists and technicians already exist in China.
Reshaping the market so that existing productive capacity finds buyers should be a lesser hurdle than creating this capacity where none exist. This is the “increase domestic consumption” strategy.
The more ambitious strategy would be to create a new set of assets to replace American ones. The new asset class of the world’s ultimate fantasy is surely Global South infrastructure. This is the holy grail of rational economic development and the theoretical basis for President Xi Jinping’s Belt and Road Initiative.
Well before Trump’s tariff temper tantrum, Chinese policymakers have long understood that capital flowing from less-developed Asia to fund consumption in more developed America — the Lucas Paradox — was highly problematic.
The BRI project was devised to correct this unnatural development model for the Global South, where capital from a richer China flows to less developed economies to fund infrastructure construction. In this case, our bass boat factory can be retooled to make excavators or cement mixers to build power plants in Nairobi or Ashgabat.
There are, of course, obstacles to this model on top of retooling bass boat factories. To date, the BRI project has shelled out $1.2 trillion, with a significant slowdown in recent years.
The Covid recession has damaged China’s BRI portfolio, forcing outstanding loans to be restructured, often extending tenures or taking haircuts which, given China’s surging exports and growing economic integration with the Global South, may be justified.
For the BRI to significantly offset a diminished US market, the Global South will need to demonstrate more consistent creditworthiness.
These two strategies – increase domestic consumption and reaccelerate BRI – can be the uppercut follow-up. China has been loath to fund direct consumption stimulus beyond modest car and appliance rebate programs.
The government has leaned heavily on investment, the benefits of which flow to consumers as better infrastructure, lower prices and more innovative products.
Over the long term (10-40 years), this investment strategy has increased China’s household consumption more than any other economy – all 194 of them and twice as fast as second place South Korea.
This time, however, China may just need to lean into stimulating domestic consumption. China (and Hong Kong) exported $477 billion of goods to the US in 2024 with another $100-200 billion in transshipments through third countries like Vietnam and Mexico with the goods skewed towards consumer products. Stimulating another round of investment will soak up steel and cement capacity but not electronics, furniture and appliances.
Announcing a consumption stimulus takes the heat off of global markets, which have been bracing for a flood of Chinese goods redirected to their shores, preventing tariffs from cascading across the world.
Not only would it backstop the deflation induced by the Trump tariffs but exacerbate American inflation, putting the Federal Reserve in a stagflation bind.
But can China make up for lost American demand? Does China have the financial firepower? While not the path favored by the Chinese Communist Party’s conservative style, the fact that the government has not been profligate suggests that there is ample financial firepower.
Various agencies have pegged China’s debt-to-GDP ratio at a high 300% – above that of the US which, in recent years, has been inflated down to 275%.
This is far off the mark. Like in many other calculations, consensus Western economists are using the wrong denominator. China has been reporting GDP on a completely different basis for decades (see here) and as such, its debt-to-GDP ratio is closer to 150% or even lower.
Simplistically, there are 500 million Chinese consuming at developed world levels – these are the people who make China the world’s largest market for cars and luxury goods.
And 900 million who are consuming at Southeast Asian levels – these are the people who will be moving into developed world consumption patterns in the next 20 years. So yes, there are plenty of people who can pick up the slack.
If China successfully pulls off the one-two Mike Tyson combo, it could be a knockout blow to the relevance of America in the global economy. China would have created a global trading system that not only does it lead but also leaves the US isolated.
If China plays its cards correctly, the Trump tariffs could go down in history as a far greater debacle than Brexit. Donald Trump has committed an unforced error and presented China with an opportunity that will not be seen in centuries.
While the modern Communist Party has generally been a conservative steward of national interests, it has been known to take wild swings. Zhu Rongji laid off 30 million SOE employees in the late 1990s. Hu Jintao unleashed an epic investment stimulus after the 2008-9 Global Financial Crisis.
Mike Tyson just delivered the first punch with the matching 34% tariff. Will he follow up with the massive consumption stimulus uppercut?
Source : Asia Times
Here’s Why China Retaliates With 34% Tariff, And Wiped Off $6.6 Trillion
Since returning to power in January 2025, Trump had already imposed two rounds of 10% additional duties on all Chinese imports. Having failed to bring the Middle Kingdom to its knees during his first term, the U.S. president is throwing everything, including the kitchen sink, in his “Trade War 2.0” with China. On Wednesday (2-April), Mr Trump slapped an additional 34% tariff.
Effectively, Chinese goods arriving in the U.S. would be subject to tariffs of over 54%. However, barely 48 hours after Trump escalated a global trade war on the so-called “Liberation Day”, it became “Destruction Day” when Beijing on Friday (4-April) made good on its promise to strike back – imposing reciprocal 34% tariffs on all imports from the United States effective from April 10.
“This practice of the U.S. is not in line with international trade rules, seriously undermines China’s legitimate rights and interests, and is a typical unilateral bullying practice. China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner,” – China’s State Council Tariff Commission said in its retaliatory tariffs.
Additionally, China has added 11 U.S. firms to the “unreliable entities list” that it says have violated market rules, including drone manufacturers and put export controls on 16 American companies to prohibit the export of Chinese dual-use items. Beijing also imposed export controls on seven types of rare-earth minerals to the US, including samarium, gadolinium and terbium.
It was already a horrible day on Thursday (3-April), when the Dow fell 1,679 points, or nearly 4%. The S&P 500 plunged nearly 5% and the Nasdaq dropped nearly 6%. But it was just the beginning. All hell broke loose on Friday when the Dow Jones Industrial Average (DJIA) dropped 2,231 points after China retaliated with the unexpected tariff – the biggest tumble since March 2020.
Rubbing salt in the wound, the stock market meltdown on Thursday and Friday marks the first time in history that the Wall Street has lost more than 1,500 points in two consecutive days. The “confidence crisis” sparked by Trump’s trade war also tanked the U.S. dollar, which dropped to a 6-month low against the Euro. Even oil prices drop 7% to US$65 a barrel to 4-year low since 2021.
China’s retaliation had wiped off a whopping US$6.6 trillion from the U.S. stock valuation. Worse, roughly US$11.1 trillion has gone up in smoke since January 17, the Friday before Donald Trump took the oath of office and began his second term. The Dow Jones has fallen by 11.9% since the Inauguration Day, while the S&P 500 has lost 15.4%.
Even U.S. Secretary of State Marco Rubio acknowledged on Friday that “markets are crashing” following the Trump administration’s launch of sweeping global tariffs, which the defiant U.S. President claims would allow the U.S. to flourish economically. The new import taxes, which has a minimum rate of 10%, will hit more than 180 countries, including allies.
The key trading partners subject to these customised tariff rates include European Union (20%), Japan (24%), Taiwan (32%), Vietnam (46%), Thailand (36%), Cambodia (49%) and South Africa (30%). The formula is quite simple – identify the trade deficit for the U.S. in goods with a particular country, divide that by the total goods imports from that country and then divide that number by two.
For example, the U.S. buys more goods from China than it sells to them, hence a deficit of US$295 billion. The total amount of goods it buys from China is US$440 billion. Here’s the calculations – divide 295 by 440 gives you 67%, then divide that by two and round up. Therefore, the tariff rate imposed on China is 34%. Likewise, when it applied to the EU, the Trump’s formula resulted in a 20% tariff.
While countries like Malaysia – hit with 24% tariff – has decided not to retaliate because it has zero chance of winning a trade war with the U.S., world’s second largest economy – China – has the firepower to play the tariff game. But why is Beijing so daring to the extent of not only matching Trump’s tariff rate (34%), but also boldly retaliates with a sweeping tariff instead of a targeted one like previously?
First of all, Trump has effectively raised the average US tariff rate on Chinese products to 69%, not just 54%. That’s because the average rate on Chinese goods was already at 15% when Trump took office in January this year. Essentially, China’s goal to grow its economy by around 5% in 2025 could be jeopardized as Trump’s escalation could erase 2.5% off the Middle Kingdom’s economic growth this year.
Just like poker, Trump’s trick is to force other players to fold or surrender by accepting the sweeping tariff with a baseline of 10%. Small nations like those in the Southeast Asia have no choice but to fold. But players like China, European Union, and Canada have enough economic power to match Trump’s raise (call). The burning question is whether Trump has the balls to re-raise or increase the bet amount again.
Donald Trump has personally warned America’s foreign trading partners “not to retaliate” to his tariff policy, which means Washington knew the economic consequences of the game. Europe and Canada, however, might be bluffing when they talk tough on Trump’s tariffs. Commission President Ursula von der Leyen claims they hold “a lot of cards”, including the strength to negotiate and the power to push back.
In reality, even though the EU’s market of 450 million people makes up 22% of global GDP, it wants to avoid a new backlash by the Trump administration as the egoistic U.S. president could easily trigger an open trade war between the U.S and EU. The U.S. goods trade deficit with the European Union (EU) was US$235.6 billion in 2024, a 12.9% increase (US$26.9 billion) over 2023.
Clearly, not only the EU has lesser appetite than Trump to raise its bet in the poker game, the Europe actually has to take politics into account, not just economics. For example, the EU has already trapped itself after foolishly obeyed Washington in sanctioning Russian gas following the invasion of Ukraine, forcing the 27-bloc EU nations to depend heavily on the U.S. liquefied natural gas (LNG).
So, the Europe’s tactic is simple – threaten heavy retaliation, hope Donald Trump will chicken out and is persuaded to negotiate, and then pray the POTUS makes a U-turn on tariffs. Unlike China, the EU is in no rush to retaliate because it is bluffing from the beginning. To project strength for political reasons, it has to put up a brave face and pretends to be ready to retaliate.
Bluffing or not, the damage is already done even before Trump’s 20% tariffs on EU goods sold to the U.S., especially in Germany, after an earlier 25% auto tariff on any vehicle not assembled in America, affecting more than US$460 billion worth of imports of vehicles and auto parts imports annually. Beijing was – deliberately – adding fuel to the fire when it announced a retaliatory 34% tariff on the U.S.
Beijing is actually capitalising on the plunging stock markets, U.S. dollar and oil price to make matters worse. Just like a “scorched-earth policy” in a military strategy, China purposely destroys the global financial markets to prevent enemy U.S. from winning the tariff war. If Trump’s intention was to destroy the Chinese economy, China is making sure it brings the U.S. (and all its allies) down as well.
If China’s economic growth would be reduced to 2.5% instead of 5%, it wants to ensure the U.S. is plunged into a recession, or worse depression. The worse the crisis becomes the better chance Trump will be under domestic pressure to make a humiliating U-turn. This is similar to the “escalate to de-escalate” favourite tactic used by the West in military conflicts.
Mr Trump thought he could easily force China to negotiate with his 34% tariff, only for the Chinese government to turn the table with its own 34% tax to force the U.S. to cancel the tariff. And Beijing could raise the bets on the poker table because it does not rely on the U.S. for oil and gas, minerals, defence, electric vehicle market or latest semiconductors.
The best part is, not only Donald Trump gets all the blames for sinking the Wall Street, but also criticized by the entire world for sparking a full-blown global trade war that could push up inflation and trigger a recession. By retaliating in full force, China is actually leading other countries to retaliate in a similar fashion. It could afford to do so because Trump has forgotten one thing.
Having learned how to play the trade war game during Trump’s first term, China today is well prepared. The Chinese’ 34% duties on all US goods, which are on top of the 10%-15% tariffs placed on about US$21 billion worth of agricultural trade in early March, will basically shut down all US agricultural imports. The biggest impact will be American soybeans and sorghum.
American farmers will be in deeper trouble if the EU also boycotts the U.S. soybeans. China has already found alternatives in Brazil, Argentina and Paraguay as suppliers of soybeans, wheat, corn and other agricultural goods. China is such a huge market that it still remains the largest market for U.S. agricultural products despite imports have plunged to US$29.25 billion (2024) from US$42.8 billion (2022).
Besides agricultural goods, the U.S. top exports to China include crude and petroleum oil, propane, and liquefied natural gas, which were worth US$23.6 billion in 2023. China also bought US$17 billion in machinery and parts from the US in the same year, as well as US$12 billion in electronics. American cars export to China, worth US$7.5 billion, will now be impacted by 34% tariffs.
Of all the countries hit with tariffs, American families will likely feel the impact of China’s most – and soon. And Beijing knew this. That’s because despite the 54% total tariff on imported Chinese products, U.S. consumers will continue torely highlyon them, through many parts of the supply chain. For example, electronics and machinery are the top goods imported to the U.S. from China, at US$208 billion in 2023 alone.
Prices for iPhones could increase by up to 40% due to the new 46% tariffs on Vietnam and 34% tariffs on China. From computers to domestic appliances, and electric batteries, everything will cost more for Americans. Textile imports worth US$36 billion may also impact regular consumers as cheap, American-favourite brands such as Shein and Temu may face tariffs for the first time.
The U.S. president repeatedly said his tariffs will bring jobs and factories back to the U.S., but Beijing has another idea – escalate the trade war, push up prices, reduce consumer spending in America, spark inflation and cause the U.S. economic growth to decline. China has taken steps to restrict local companies from investing in the U.S. – a move to create more leverage during negotiations.
The fact that Chinese President Xi Jinping and six other members of the Politburo Standing Committee were out planting trees to promote the need to counter deforestation, whilst other world governments were panicked and scrambled to understand the impact of the tariffs on the day Trump announced it, speaks volumes about China’s readiness and preparedness.
Chances are President Donald Trump did not fully understand himself the consequences of his executive order because even an unknown territory – Heard and McDonald Islands – was slapped with 10% tariff. Exactly how did the two tiny, remote Antarctic outposts populated by innocent 100,000 penguins and seals are targeted by the U.S. president to “Make America Great Again” is beyond comprehension.
The Coverage Malaysia
