Tariff war like drinking poison to quench thirst

Editor's note: The article, written by Tian Huifang, a senior research fellow with the Chinese Academy of Social Sciences, reflects the author's opinions and not necessarily the views of CGTN. 

On April 2, 2025, US President Donald Trump's administration launched an economically illogical "reciprocal tariffs", which was like an economic hurricane, severely impacting global supply chains and market confidence, and bringing huge uncertainty to the prospects of global economy.

According to the Trump administration's vision, "reciprocal tariffs" can bring huge fiscal revenue to the United States. However, the realization of this goal requires trading partners to unconditionally abide by the rules created by Trump, maintain the same export volume to the United States, while exporters rather than importers bear high tariffs. The reality is that the introduction of reciprocal tariffs has not only triggered global confrontational sentiment, but also first hit the domestic market and consumers in the United States. The dollar market value of US stocks evaporated by the trillions within 48 hours of the policy's introduction, with pension assets shrinking, prices of daily consumer goods rising, and large-scale protest marches being triggered. Goldman Sachs lowered its forecast for US GDP growth in the fourth quarter of 2025 to 0.5 percent, and raised the probability of a 12-month recession from 35 percent to 45 percent, due to a sharp tightening of the financial environment, foreign consumer boycotts, and continued soaring policy uncertainty.

Another hope of Trump is that "reciprocal tariffs" can stimulate the return and prosperity of the US manufacturing industry. However, simply attributing the problems of the US manufacturing industry to trading partners and attempting to solve them through high tariffs will undoubtedly face challenges, and may even weaken the competitiveness of the US's advantageous industries.

From a historical perspective, it is a global trend that the proportion of manufacturing decreases after economic development reaches a certain level. Technological progress, improved automation, changes in consumer preferences, and the global movement of the US dollar as an international reserve currency have all contributed to the decline in manufacturing employment in the US, with trade being just one of the factors. However, the global diffusion of manufacturing did not destroy the prosperity of the US. Instead, it has promoted greater specialization and trade, laying the foundation for its post-war economic prosperity and improved living standards. The decline in manufacturing share has not weakened the core competitiveness of the US, either. In particular, the US has always been in a leading position in high-tech and high-value-added fields. The structural adjustment and industrial upgrading have enabled the US to dominate the formation of a global production and business network, occupy a favorable position in the global value chain, and demonstrate adaptability and flexibility in the global economy.

However, the implementation of reciprocal tariffs may cause the US manufacturing repatriation plan to stagnate due to the lack of a complete industrial chain. Although the US has temporarily suspended such economic measures on most countries, high tariffs on industries such as automobiles, steel and aluminium still exist, which will inevitably increase steel prices in the future and undermine many domestic industries that rely on steel as an important input, such as automobile manufacturers and the construction industry. A baseline tariff of 10 percent will also hurt most American manufacturers.

The global supply chain has taken decades to form, and forced fragmentation will lead to a permanent increase in production costs. More importantly, the return of enterprises is not just the return of factories, technology and production, but also requires domestic supporting capabilities, for example, cheaper and sufficient skilled labor, which call for a large investment in education and training, and vocational education reform to meet diversified needs of different manufacturing industries. All these cannot be solved overnight. China and the US have very close ties, especially in the fields of supply chain, trade and investment, and financial markets. Many American companies have production bases in China, and a large number of Chinese-made products have entered the US market. The US's forced decoupling from China will not only cause significant short-term economic pain, but inevitably lead to the fragmentation of the global supply chain, differentiation of technical standards, and rising consumption and production costs. In the end, the US will not only fail to achieve the goal of "manufacturing return", but also weaken the global competitiveness of its advantageous industries.

Another pursuit of Trump is to make the US stronger through misjudged tariff policies and make other countries more dependent on the US. However, the market's reaction has sounded the alarm: the uncertainty and tension brought about by high tariffs may damage the international status of US dollar as the world's reserve currency. At the close of New York trading on April 10, the Bloomberg Dollar Spot Index fell 1.5 percent, the largest single-day drop since 2022. The US dollar has always been regarded as a safe-haven asset during global turmoil, but the Trump administration's wanton destruction of the global economic governance order has reduced market confidence in the dollar and the international community's trust in the US government. Waning confidence has prompted investors to ditch US assets to other safe havens like the Swiss Franc, Japanese Yen and Euro, as well as gold. In the long run, the protectionist policies of the US may force other countries to seek alternatives, such as expanding local currency settlement, increasing gold reserves, or using other currencies for trade pricing, which will gradually weaken the global dominance of the US dollar. This is a more far-reaching risk for the US than short-term market fluctuations.

Historical experience is worth learning from. The Fordney-McCumber Tariff Act of 1922 raised the average US import tax to about 40 percent, which had little effect on American prosperity except for triggering retaliation from Europe. The Smoot-Hawley Tariff Act of 1933 directly led to Wall Street's loss of confidence, severely hitting the once competitive manufacturing industry, while plunging the country into a period which became known as the Great Depression. Trump's "reciprocal tariffs" have only been introduced for a few days, but the impact it has caused is now enough to alert people that in the era of globalization, no country can be immune. Behind the forced reconstruction of the global supply chain, hundreds of millions of jobs and the stability of the global economy will be affected. Launching a tariff war to maintain the US security has been proven to be the most inappropriate move imaginable.