The current situation is like chess, showing changes in turbulence and mystery. The Sino-US tariff war continues to escalate. How can China deal with America's strategic suppression? Where does the resilience of the Chinese economy come from? Liu Yuanchun, president of Shanghai University of Finance and Economics and a well-known economist, believes that the core contradiction in the Sino-US tariff war is the strategic upgrade from “containing China” to “self-reinventing” proposed by Trump 2.0, which highlights the inevitability of the times. Currently, we can't talk about tariffs; instead, we need to recognize our next strategic position through the reflective effects of the two sides after the game.

“This is not an accidental friction; it is inevitable that the pattern of major powers will be restructured.” Liu Yuanchun, president of Shanghai University of Finance and Economics and a well-known economist, spoke bluntly in an exclusive interview. In his view, behind the Sino-US tariff war is the epitome of “major changes that have not occurred in 100 years” — America's containment logic collides violently with China's path to rise, and the resilience of China's macroeconomy and capital markets is being tested in this game.

The deep logic of the Sino-US tariff war: from “containing China” to “reinventing itself”

The times are changing rapidly. On April 16, the Ministry of Foreign Affairs responded to the increase in US tariffs on China to 245%. Foreign Ministry Spokesman Lin Jian stressed that China's position has always been very clear. There are no winners in the tariff war or trade war, and China is unwilling to fight, but it is not afraid to fight.

Trump returned to the White House for just over 3 months, from launching the first round of trade frictions with China, Canada, and Mexico on February 1 to the implementation of equal tariffs on April 2, to an all-out war against more than 60 countries and regions. In just over ten days, the Sino-US tariff war broke through historical extremes with four consecutive jumps. It was thought that behind the 125% tax rate was a super confrontation between global restructuring of the supply chain and hegemonic anxiety. Meanwhile, on April 15, local time, the White House announced the imposition of tariffs on China to 245%, further escalating the tariff war. This round of “extreme pressure” and “strategic countermeasures” has far surpassed traditional trade frictions and has become a microcosm of the restructuring of the global economic order.

The rapid development of the situation once showed a tense situation where “dark clouds overwhelmed the city and wanted to destroy it.” However, in response to this, Liu Yuanchun calmly stated, “From a national perspective, there must have been expectations for a long time.” He analyzed that starting with the 2016 US election and Trump's election in 2017, America's strategy to contain China has comprehensively highlighted the inevitability of the times.

Through the political hustle and bustle on the surface, it is easy to see that the “Make America Great Again” (MAGA) proposed by Trump 2.0 has gone from a simple strategy of containing China to a systematic and structural adjustment of the US, which is being carried out in the three dimensions of tariffs, exchange rates, and security.

Liu Yuanchun pointed out that while the Trump administration's tariff war is ostensibly in the name of reducing the trade deficit, it actually includes three deep goals:

1. Reindustrialization and industrial chain restructuring: Protect local industries through tariffs, attract the return of manufacturing, and solve the problem of hollowing out of the US industry.

2. Maintaining the hegemony of the US dollar: Use exchange rate intervention and financial means to consolidate the dominant position of the US dollar in the global monetary system.

3. Curb China's rise: Lock China in the middle and lower end of the global value chain and slow down its technological and industrial upgrading process.

It is worth noting that America's strategy in recent years has changed from “simply containing China” to “enhancing self-competitiveness and containing China at the same time.” Liu Yuanchun stressed that currently, we cannot talk about tariffs; instead, we need to be aware that behind this “dual-track strategy,” the US is trying to buy a time window for upgrading its own industry at the cost of suppressing China.

As a result, the Trump administration's idea of a “Mar-A-Lago Accord” (Mar-A-Lago Accord) came to light. The US is trying to reduce its trade deficit through a high tariff policy against China, and at the same time use a “weak dollar strategy” to enhance the competitiveness of the local manufacturing industry. However, Liu Yuanchun believes that there is a fundamental contradiction in this strategy: “The 'New Triffin Problem', where a strong dollar coexists with trade deficits, has not been solved; industrial hollowing out can be reversed even more without tariffs.” He quoted Stephen Miran (Stephen Miran), chairman of the White House Economic Advisory Committee, as saying that the essence of America's decline in competitiveness is “industrial hollowing out and excessive financial expansion,” and that the rise of China is only a sign of its anxiety.

The Significance of the Times: An Inflection Point in the Global Order and China's Strategic Opportunities

Liu Yuanchun stressed that the Sino-US tariff war marks the advent of a new era, and the global trade order, financial order, and governance order have undergone dramatic changes.

First, the most intuitive sign is that America's tariff policy has caused severe shocks in its domestic financial markets. As an example, he said, “Tariffs on China have caused US technology stocks to plummet, treasury bond yields fluctuate, and even signs of systemic financial risk.” The US stock market is extremely sensitive to the tariff war. The imposition of tariffs has led to rising corporate costs and falling profit expectations, which in turn triggered investors to panic sell off, and stock prices plummeted. Fluctuations in treasury bond yields reflect market concerns about the future of the US economy. Driven by risk aversion, investors' demand for treasury bonds has changed, leading to unstable yields. “In order to ease the pressure on financial markets, the US had to exempt some key products (such as semiconductors), which shows that its policies are inherently contradictory.”

Furthermore, the US is highly dependent on China in the industrial chain, especially in key fields such as rare earths and pharmaceutical raw materials. China is the world's largest producer and exporter of rare earths. As an important strategic resource, rare earths are widely used in high-end manufacturing industries such as electronics, new energy, and aerospace. The US is extremely dependent on China's rare earths in these fields, and it is difficult to find alternative sources of supply in the short term. In terms of pharmaceutical raw materials, China is also an important global producer and exporter, and many US pharmaceutical companies depend on China for the supply of raw materials. This paradox of “dependency and decoupling” reveals the deep fragility of the US economic structure.

More importantly, America's system of allies is loosening. “America requires allies to stand on the sidelines, yet it underestimates the damage it harms the interests of traditional allies.” Using Germany and Canada as examples, Liu Yuanchun pointed out that US acts such as imposing tariffs on steel and aluminum and interfering with Denmark's sovereignty over Greenland have triggered a strong backlash from allies. “While the US is actually protecting trade in the name of 'national security', the foundations of its value alliance are loosening. The olive branch currently thrown by the US in the equal tariff negotiations cannot hedge against the damage caused to allies in the new layout of the global system, so we don't need to worry about the game between China and the US evolving into a many-to-one pattern in the future.” This strategy of “injuring 800 enemies and damaging oneself 1,000” not only weakened the “anti-China united front” led by the US, but instead provided an opportunity for deepening cooperation between China, Europe, and ASEAN.

Underneath the appearance of a policy game, what is hidden is an institutional anchor for the reshaping of the global capital order. It also provides us with new strategic opportunities for how to use leverage power to achieve our strategic goals in the midst of major changes that have not occurred in 100 years.

China's Strategic Response: Short-Term Relief and Long-Term Layout

Facing US suppression, how can China break the game? Liu Yuanchun conducted an in-depth analysis from the two levels of short-term policy response and long-term strategic transformation.

Looking at it now, China has quickly introduced a series of short-term countermeasures to stabilize the basic economic market. Short-term relief focuses on targeted relief and policy enhancements.

For affected enterprises, Liu Yuanchun proposed implementing “precise drip irrigation.” “The tariff war has had the biggest impact on exporting companies, especially those that depend on the US market.” Liu Yuanchun pointed out that the Chinese government has taken a number of measures to ease the pressure, including order transfers, tax relief, stable employment, and supply chain subsidies.

On the one hand, the Chinese government has adopted a targeted bailout strategy for enterprises that have been severely impacted by tariffs, especially foreign trade enterprises. Due to the increase in tariffs, many foreign trade enterprises have lost large numbers of orders, and are facing tremendous pressure to survive. The government guides these enterprises to turn their attention to the domestic demand market. Through policy support and platform construction, it helps enterprises expand domestic sales channels and shift products originally intended for export to domestic market sales.

On the other hand, China has given full play to the advantages of the platform economy. E-commerce platforms such as JD and Pinduoduo have responded positively to the government's call and introduced a series of support policies for enterprises affected by tariffs. These platforms provide services such as traffic support, lower entry barriers, and optimize logistics distribution to help enterprises achieve transformation and upgrading. The government also directly purchases enterprise products through targeted procurement and other methods to relieve pressure on companies' inventories and help enterprises maintain production and operation.

With regard to maintaining financial stability, Liu Yuanchun believes that China has prepared the tools to deal with it. China has established a “Chinese-style equalization fund,” and China Investment Corporation's increase in ETF (Tradable Open Index Fund) holdings is one of the specific measures. The purpose of establishing the Equalization Fund is to stabilize the capital market, boost market confidence and prevent excessive stock market decline by buying assets such as stocks when the market is sluggish. At the same time, the government encourages state-owned enterprises to repurchase shares. As an important pillar of the national economy, their share repurchase behavior sends a positive signal to the market and enhances investors' confidence in the market.

“There is also room for adjustments in our monetary policy to hedge against external shocks. Short-term hedging is still very important, that is, to ensure efficient and smooth domestic circulation.” he added. China can implement a moderately loose monetary policy, increase market liquidity and hedge against capital outflows through measures such as lowering interest rates. The downgrade can release commercial bank reserves and increase the money supply in the market; interest rate cuts reduce financing costs for enterprises and residents, stimulate investment and consumption, and stabilize economic growth.

From a long-term perspective, China has formulated a comprehensive and systematic medium- to long-term strategic layout.

First, Liu Yuanchun emphasized the need to expand domestic demand and establish a “domestic cycle.” “This tariff war is unfolding rapidly and violently; in fact, it is a great opportunity for national education. It must make all sectors aware that China's recent rapid increase in consumption and expansion of domestic demand is of great strategic importance, rather than optional.” he said.

In terms of expanding domestic demand, speed up the implementation of consumer stimulus policies. The reform of the wage system has become a key part of enhancing residents' spending capacity by rationally adjusting the wage structure and raising the income level of workers. New consumer investment is also accelerating. Investments in fields such as new energy vehicles, the digital economy, and high-end manufacturing need to be further accelerated. At the same time, it is necessary to break down local market divisions and form a “unified national market.”

At the same time, “real estate is still the ballast stone of the macroeconomy.” China has taken a series of measures to avoid a hard landing in the real estate market. Lower mortgage interest rates, reduce buyers' repayment pressure, and stimulate housing consumption demand. Accelerate the storage of stock housing, concentrate idle housing in the market, revitalize existing resources through leasing and other methods, and stabilize the relationship between supply and demand in the real estate market.

In terms of breakthroughs in the industrial chain, China is making every effort to strengthen the autonomy and control of key technologies such as semiconductors, using “new quality productivity” as an important starting point. Increase investment in semiconductor research and development, encourage cooperation between enterprises and scientific research institutions, break through technological bottlenecks, reduce dependence on foreign technology, and enhance the safety and stability of the industrial chain supply chain.

In terms of international cooperation, China cleverly exploits the conflicts between the US and its allies, deepens cooperation with European, ASEAN and other economies, and actively promotes the restructuring of the multilateral trading system. By strengthening cooperation with Europe in the fields of green technology and high-end manufacturing, and cooperation with ASEAN in regional trade and connectivity, we will expand international market space and enhance China's voice in global economic governance.

Liu Yuanchun stressed that we need to follow the new development pattern strategy of the Chinese economy and the strategy of expanding domestic demand. We must aim to expand domestic demand based on the domestic cycle. This is the foundation for our high-quality development.

Capital Market Stability: “Rediscovering Value” Amidst Fluctuations

When talking about capital market stability, Liu Yuanchun first pointed out, “We must pay attention to the reversal of global capital and the occurrence of a global order system.”

Financial fragility is a major problem in the US. Trump's 2.0 “instrumentalization of tariffs” has also created a sense of panic across the US. Its impact on the capital market far exceeds the traditional trade theory framework. The capital market is worried about Trump's capriciousness, leaving American consumers, businesses, and capital markets at a loss of confidence in US assets, and the dollar's credit will continue to collapse.

Liu Yuanchun observed, “The changes in the US narrative are good for the stability of China's capital market; the Chinese narrative has fundamentally reversed.”

“Innovative breakthroughs by companies such as Kangfang Biotech and Deepseek have made the world re-examine the logic of revaluation of Chinese assets.” Liu Yuanchun believes that the capital market needs to get rid of excessive reactions to short-term tariff shocks and focus instead on endogenous advantages such as “engineer dividends” and “hyperscale markets.” “While US tech stocks are under pressure due to high interest rates, China's undervalued hard tech sector has instead become a slump.”

“The game of great powers has no end; there is only dynamic balance.” Liu Yuanchun warned, “I think fluctuations in this area are normal. Overall stability is to be expected. Stable confidence in the capital market is more important than gold. Although many people are worried about the consequences of hard decoupling, everyone must believe that this is impossible.”

Looking forward to the future: China's confidence in a state of conflict

In this in-depth conversation, Liu Yuanchun not only revealed the underlying logic of the Sino-US tariff war, but also showed the depth of the Chinese economy's strategy.

His opinion clearly stated, “Today, many people have never seen a hard confrontation in their lives. This is a reflection of the Chinese people living in a time of peace and an era of globalization. However, from a historical perspective, from Britain's hegemony to the rise of America, changes in power will inevitably be accompanied by conflict. But conflict itself is also a catalyst for innovation.”

He believes that as long as China persists in expanding opening-up, deepening domestic demand reform, and maintaining the bottom line of financial security, “conflicts will be the norm in the future, but we need to be confident that in the game between China and the US, the weight of the winning side will eventually lean towards the east.”

Right now, spring is in full bloom outside the window of Shanghai University of Finance and Economics, and the sun is just right. The city's resilience is probably a metaphor for the Chinese economy — anchoring direction in the midst of ups and downs and opening up new horizons in the midst of change.