Editor's note: For a period of time, the highly prolonged tariff war has reached an important turning point last week. On May 12th, China and the United States issued the "China-U.S. Geneva Economic and Trade Talks Joint Statement," announcing that both sides would significantly reduce tariffs and set a 90-day buffer period for subsequent negotiations. The adjusted tariffs took effect on May 14th. The outcome of this meeting has been interpreted by the market as being positive for easing trade friction. However, the residual tariff issues and the challenges of China's economic transformation remain a concern.
【Anchor】Hello everyone, welcome to DDN Business Insider. I am Yunfei Zhang. For a period of time, the highly prolonged tariff war has reached an important turning point last week. On May 12th, China and the United States issued the "China-U.S. Geneva Economic and Trade Talks Joint Statement," announcing that both sides would significantly reduce tariffs and set a 90-day buffer period for subsequent negotiations. The adjusted tariffs took effect on May 14th. The outcome of this meeting has been interpreted by the market as being positive for easing trade friction. However, the residual tariff issues and the challenges of China's economic transformation remain a concern. To discuss these topics, we have invited Mr. Qin Tai, Deputy Director of Huafu Securities Research Institute, Head of the Macroeconomic Team, and Chief Analyst of Macro and Non-Bank Financials and Real Estate, as well as Ms. Ren Libi, Founder and President of Beijing Yuanda Investment Co., Ltd., and well-known investor, to analyze and interpret these issues. Hello, everyone!
The final results of this high-level Sino-U.S. economic and trade meeting indicate that the U.S. has removed a total of 91% of the imposed tariffs, while China has correspondingly lifted 91% of its counter-tariffs. The U.S. has suspended the implementation of 24% of the "retaliatory tariffs," and China has also suspended 24% of its counter-tariffs. The combined mutual tariff reduction reaches 115%, which the market generally considers to be beyond expectations. Mr. Qin, what is your view on the outcome of this meeting?
【Qin】The China-U.S. Geneva economic and trade talks have made significant positive progress. The substantial reduction of U.S. tariffs on China represents a phased reduction, and both sides have agreed to establish a mechanism for ongoing consultations. The governments of China and the U.S. have reached a preliminary consensus. On the basis of the significant reduction of tariffs, both sides will set up a mechanism to continue negotiating on economic and trade relations. This clear joint statement indicates a notable turning point towards easing the tariff war initiated by the United States. One background for this tariff easing is that U.S. economic data has begun to show short-term stimulus effects on domestic demand, and the fundamental rule that manufacturing capacity cannot quickly shift back to the U.S. From this perspective, the current inclination of the U.S. government to ease tariffs may primarily be aimed at gaining more time for rebuilding its domestic supply chain and for the structural expansion of fiscal policy. Once progress is made in the reconstruction of domestic capacity in the U.S., the possibility of fluctuations in U.S. tariff policy cannot be ruled out.
【Anchor】Good. Ms. Ren, do you think the result of this round of negotiations truly exceeded market expectations? What impact will this result have on market sentiment and actual investment decisions?
【Ren】The U.S. has canceled 91% of the tariffs on Chinese goods, and China has simultaneously lifted its corresponding countermeasures, retaining only 10 percentage point of base tariff rates and suspending the remaining 24% of the tariffs for 90 days. This significantly reduces our export costs. According to Goldman Sachs' estimates, China's export costs to the U.S. will decrease to between 35% and 40%, particularly benefiting industries such as textiles, electronics, and the solar photovoltaic industry. Additionally, the semiconductor industry will also see substantial benefits. The U.S. has canceled high tariffs on Chinese chips, will restore normal tariff levels for certain semiconductor products, such as memory chips and optoelectronic modules, thereby lowering import costs for Chinese companies.
【Anchor】With the latest tariff policies implemented, foreign trade companies have taken immediate action, especially by seizing the 90-day tariff buffer period, which has led to a surge in "restocking" and "shipping." Mr. Qin, how do you view this phenomenon? What does the easing of tariff policies mean for foreign trade companies in both China and the U.S., as well as for the economic development of both countries?
【Qin】From our country's export situation, in the short to medium term, the intensity of U.S. tariffs on China and on our major collaborative production regions has significantly eased. This provides greater potential and ample space for the second wave of export surges that began to show in our April data. However, from a medium to long-term perspective, the U.S.'s long-term strategic intention to disrupt global supply chains still exists, and the easing of the tariff environment is not permanent.
【Anchor】Yes. Ms. Ren, what are your thoughts? Do you believe that a "restocking surge" is occurring?
【Ren】There are several significant implications for China. First, it will boost short-term exports. After the tariff adjustments, the costs for China's exports to the U.S. have significantly decreased. The 90-day window period will likely catalyze a rush to export, with export growth expected to increase in the coming months. Second, it will invigorate the supply chain. Orders that were previously suppressed by tariffs will be concentrated and reissued, activating the entire foreign trade supply chain from production to development. Third, it will restore business confidence and facilitate market expansion. The 90-day buffer period allows companies time to adjust their strategies and regain confidence in the U.S. market. Meanwhile, some companies will also use this opportunity to expand into other overseas markets, reducing reliance on the U.S.
For the U.S., one implication is alleviating inventory pressure. Many orders were canceled previously due to tariff risks, leading to tight inventories. The 90-day buffer will allow them to quickly restock and maintain normal business operations. Second, it stabilizes the supply chain. The buffer period provides the U.S. with a stable inventory transportation cycle, helping to stabilize its supply chain and avoid disruptions caused by tariff policy uncertainties. Third, it stabilizes the consumer market. With the reduction of tariffs, American consumers will be able to purchase Chinese goods at lower prices, easing the price pressures caused by high tariffs. Regarding the restocking surge, multiple media outlets have reported that after tariffs were lowered, foreign trade companies concentrated their orders and actively prepared stock. The uncertainty surrounding the 90-day tariff policy will likely lead to a wave of restocking in the short term.
【Anchor】Good. Although current tariff policies have eased, we must not overlook that even with an agreement, Chinese exports to the U.S. may still face an average tariff of 49% in the future, including about 19% tariffs that existed before Trump took office, 20% fentanyl tariffs, and 10%retaliatory tariffs. It can be said that the pressure for China to transition to a domestic demand-driven economy still exists. Mr. Qin, what policy tools do you think China can utilize to expand domestic demand and alleviate transformation pressures?
【Qin】We recommend that, under favorable short to medium-term prospects, where export outlook is favorable and exchange rates tend to rise, efforts should be made to stabilize real estate market expectations. This, in turn, would help boost endogenous consumer propensity. On this basis, if the tariff environment changes again in the future, proactive measures can be taken to implement more active central fiscal expansion, with larger subsidies to stimulate improvements in durable goods and consumer goods, thereby truly solidifying the domestic circulation and achieving long-term resilience against external uncertainties.
【Anchor】Yes. Ms. Ren, what is your view on the current policy space? What recent measures are worth paying attention to?
【Ren】The policy space for China's transition to a domestic demand-driven economy mainly includes strategies to expand domestic demand, such as consumption upgrades. This can be achieved by increasing residents' income levels, promoting consumption upgrades, and increasing demand for high-quality services. Infrastructure is also a key area, such as accelerating the construction of new infrastructure like 5G networks, renewable energy, and electric vehicle charging stations.
The second area is the upgrade of the industrial structure. One aspect is innovation-driven development, which involves increasing investment in technological innovation to promote the transformation of traditional industries towards high-value-added, innovation-driven directions. There is also the upgrading of manufacturing, which aims to improve production efficiency and product quality through technological transformation and intelligent upgrades, enhancing competitiveness in the domestic market.
The third area is policy support and reform. This includes a statutory guarantee for private sector development of the private economy, enhancing private enterprises' confidence in future development, and promoting the healthy development of the domestic demand market. For example, the Private Economy Promotion Law can significantly advance the development of private enterprises. There are also fiscal policies, which increase fiscal support by reducing taxes, lowering fees, and providing special subsidies to alleviate the burden on businesses and residents, thereby stimulating domestic demand. Furthermore, monetary policy should maintain a prudent stance, increasing market liquidity and reducing financing costs for enterprises through measures like lowering reserve requirements and interest rates.
The measures to focus on in the near term mainly include the implementation and advancement of the policies just mentioned, such as the strategy to expand domestic demand and related planning outlines. Additionally, measures to respond to tariff impacts, such as future tariff adjustments and countermeasures, including adjustments to non-tariff measures, are also important.
【Anchor】Good. In the process of expanding domestic demand, the private economy plays an indispensable role. On May 20, which is tomorrow, the Private Economy Promotion Law will officially come into effect. Mr Yang, what message does the introduction of the Private Economy Promotion Law convey under the current complex economic and international situation? How will the private economy impact China's GDP contribution ratio to GDP rate and employment absorption capacity?
【Yang】The Private Economy Promotion Law is the first legislation in our country aimed at promoting the healthy development of the private economy, and it has garnered widespread attention from the international community. Given the current complex and ever-changing international economic situation, the introduction of this law is undoubtedly timely.
On April 2, Trump unilaterally initiated a tariff war, which significantly impacted our foreign trade export enterprises. Now, under domestic pressure, he is actively seeking negotiations with us. The China-U.S. trade talks have achieved substantial results, but challenges to foreign trade remain. Against the backdrop of slowing economic growth and ongoing foreign trade challenges, the enactment of the Private Economy Promotion Law can further invigorate private enterprises and help them grow stronger.
Especially in the field of technological innovation, private enterprises bear significant responsibilities and play important roles. By encouraging technological innovation and providing private enterprises with more resources and reliable support, we can cultivate more unicorn companies. This is a critical aspect of promoting our country's economic transformation and industrial upgrading.
The Private Economy Promotion Law proposes implementing a negative list system for the market, allowing all enterprises, including private ones, to participate fairly in areas outside the negative list. By establishing a unified national market, we can break down regional barriers and local protectionism, thereby enhancing the efficiency of our economic development.
Therefore, following the introduction of the Private Economy Promotion Law, our private enterprises are expected to unleash greater vitality, and private entrepreneurs will have more confidence and motivation to expand their businesses. This will not only achieve enterprise growth and personal wealth increase but also create more jobs and output for society, helping our country leap over the middle-income trap and enter a new phase of growth.
Currently, the global landscape is undergoing dramatic changes, and our country is expected to keep pace with the United States in technological innovation. For example, in the field of artificial intelligence, we already possess a leading advantage. In the future, by promoting the development of private enterprises in technological innovation, our country will undoubtedly further expand this advantage, identify new profit growth points, enhance the added value of our economy, and promote high-quality economic development. The Private Economy Promotion Law will provide strong support for the development of our private economy and the overall economic growth of the nation.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
Anchor: Laura Cheung | Edited: Kelly Yang, Laura Cheung, Rachel Liu | Translate: Kato Ip | Proofread: Chris Liu
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