What are China's economists publicly advising Beijing on Trump's tariff war

From Yao Yang, David Daokui Li, Lu Feng, Robin Xing, and Hua Sheng.

In the past week, some top Chinese economists have publicly shared their analyses and advice on how Beijing should respond to President Donald Trump’s unprecedented tariff hike on Chinese exports to the U.S.

I’ve excerpted the advice from five noted experts, all sourced openly from their published texts. They haven’t reviewed the translation below.

Please note the following are not their full remarks or commentaries. All emphasis is mine.

Yao Yang, Professor, China Center for Economic Research, National School of Development (NSD), speaking on April 9 at an online conference organized by the China Macroeconomy Forum (CMF) of Renmin University of China.

Via CMF blog and NSD webpage

Trump has put forward two main negotiation conditions: first, Chinese companies should invest in the U.S.; second, China should open up its market. For Chinese companies investing in the U.S., the U.S. added specific requirements, such as requiring Chinese companies to form joint ventures with U.S. companies and transfer technology to U.S. firms. There has been much domestic opposition questioning why China should transfer technology to the U.S. However, this is actually a “compliment” to China. In the past, China also required foreign companies to transfer technology in exchange for market access because China’s technology was relatively backward at the time and needed to exchange market access for technology. Now, the situation has reversed, with the U.S. and Europe beginning to require China to exchange technology for market access, reflecting China’s progress in technology and increased competitiveness. This view is not unique to Trump; many rational U.S. politicians and scholars share similar views, such as former U.S. Trade Representative Michael Froman. This shows that the U.S. attitude is changing, and this change is not a bad thing for China. Moreover, technology transfer will not weaken China’s technological advantage. For example, in the automotive industry, U.S. automakers typically updated their models every two and a half years and introduced a new model every five years, whereas Chinese automakers now launch new models almost every year. In terms of technological innovation and market response speed, Chinese automakers have made significant progress, so China need not overly worry about losing its technological advantage on the issue of technology transfer.

Opening up the domestic market, especially in the service industry, still offers significant room for China. In recent years, the difficulty of reform has increased. Looking back, especially at the reforms of the 1990s, many were pushed forward with the pressure of opening up. For example, State-Owned Enterprises (SOE) reform, government function reform, and the improvement of many legal systems were all advanced under the pressure of joining the WTO. The banking industry reform was also similar. Based on this, can China use high-level institutional openness to promote a new round of domestic reform? From this perspective, reaching a new agreement with the U.S. is feasible, and we should at least not abandon this effort.

In the domestic policy toolbox, there are still many tools that have not been fully utilized, and we should seize opportunities to turn crises into opportunities, further strengthening efforts to promote domestic demand. This year, the government has already taken large-scale measures to promote domestic demand, and the direction is correct, but there is still room for improvement. More attention should be focused on the key factors affecting domestic demand, namely the “two elephants in the room.” Directly promoting consumption faces significant difficulty because consumption is an endogenous variable, and raising the consumption level of 1.4 billion people is extremely challenging. The current “trade-in” subsidy policy has had some effect, but the actual results have not been as obvious as expected. The reason lies in the fact that the policy is still an industrial policy with restrictions on the product scope and lacks flexibility. Moreover, the subsidy scale is relatively limited, increasing from 200 billion yuan last year to 300 billion yuan this year, but this amount is still insufficient to meet demand.

Attention should be given to two critical issues impacting the economy, namely the “two elephants in the room.”

The first “elephant” is the financial difficulties faced by local governments, which is well known, and the central government has already begun taking measures. For example, this year, local special bonds will reach 4.4 trillion yuan, and two new uses have been added on top of traditional investment purposes: one is to ensure the “three guarantees” [保基本民生、保工资、保运转 guarantee basic livelihoods, wages, and govt operations]— protecting basic government operations and repaying small and medium-sized enterprise debts, as local governments owe significant debts to SMEs; the other is for land and housing acquisition. Although these two directions are correct, the effort still seems insufficient. Currently, China faces issues such as weak local government expenditure growth, fiscal deficits, and long-standing arrears in wages and debts, amounting to significant sums. If more efforts are made, such as increasing local debt by 4 to 5 trillion yuan for the “three guarantees,” although it may not be completed within a year, it could be divided over two to three years, with an increase of 2 to 3 trillion yuan annually, which would be like injecting capital into the entire economic system. Civil servants would receive their salaries, businesses, especially private ones, would receive payments, and demand would rapidly rise. As Xiaoguang pointed out, private investment growth was zero last year, and a lack of confidence is one of the important reasons. Long-standing arrears by local governments have led to a lack of investment returns, which naturally affects investment willingness. Therefore, this is a measure that serves multiple purposes. The central government’s direction is correct, but the intensity still needs to be increased.

The second “elephant” is that the real estate industry is still on the decline, though the decline has slowed down, it is still in a year-on-year decline, and this situation has lasted for nearly five years. This continued decline has had a huge impact on overall demand, leading to a series of chain reactions from investment to consumption. In fact, although in industries like tourism and catering, consumption scenes appear to be flourishing — such as crowded airports and difficulty in booking restaurants — consumption growth still seems weak.

The reason lies in the decline of major consumption, especially the reduction in housing consumption. For ordinary people, buying a house involves not only the property itself but also decoration and related consumption, and the scale of these expenditures is massive. In first and second-tier cities, the cost of decoration and furniture alone can reach 300,000 to 400,000 yuan, and the reduction in such large-scale consumption significantly drags down overall consumption. In fact, local government expenditures and real estate expenditures together account for about half of total domestic demand. Therefore, ignoring the demand from these two sectors and focusing only on personal consumption is clearly an inefficient strategy. On the contrary, attention should be focused on the financial status of local governments and the downturn in the real estate market, which would be a more effective solution.

Currently, the central government has realized the negative impact of the real estate market downturn on the economy and has taken measures to have local governments use special bonds to acquire land and housing.

However, local governments have shown a clear preference in their execution: they are willing to acquire land but are unwilling to acquire housing. The reason is that land acquisition has a potential value preservation function, while housing acquisition may face immediate losses because house prices are still falling. Local government officials, like the public, expect house prices to continue to decline. Furthermore, the central government has required local governments to reduce debt and strictly adhere to fiscal discipline, which makes them reluctant to borrow funds for housing acquisition.

To resolve this issue, we can draw from the experience of stabilizing the stock market and have the central government step in to form a “national team” — which could be a new company or an existing one — to acquire housing. The amount of funding required for such acquisitions is not large. A preliminary estimate suggests that raising 2 trillion yuan could help acquire 600,000 to 700,000 houses in first and second-tier cities, which would send a strong signal. The public would feel the central government’s confidence, which would stabilize the housing market expectations, similar to stabilizing the stock market, thereby stabilizing overall domestic demand.

Lu Feng, Professor of Economics at the National School of Development (NSD), Peking University

via China National Radio and also seen on the NSD webpage

While continuously improving supply capacity and structural quality, it is essential to address the issue of insufficient domestic demand, particularly the weak consumption, by comprehensively implementing macro and structural policy adjustments to expand domestic demand and promote consumption. We must actively accelerate the process of economic rebalancing. Since late September last year, China has introduced a series of monetary and financial measures as well as fiscal policies focused on resolving risks, which have already had a positive preliminary effect on advancing rebalancing. Going forward, we could consider improving income distribution as a key factor, such as through deepening public finance system reforms to significantly increase the proportion of income for residents and enhance the level of equal basic public services across regions and urban-rural areas.

Institutional reforms that do not require additional fiscal input also have substantial significance in responding to the current challenges, including reforms to the rural land system and the household registration system. These measures will help address the issues of insufficient demand and lack of confidence. For instance, rural land and household registration reforms are seen as important steps to stimulate household consumption, and there is significant consensus in academia on this. Reform pilots and regional reforms have been ongoing for years, and it is necessary to implement breakthrough reforms. Given the current stage of development and changes in both internal and external environments, it is necessary to adjust the allocation structure of public sector resources to moderately increase support for people’s livelihoods, especially improving the social benefits for low-income groups, thereby significantly raising both the actual and expected income levels of residents, addressing weak consumption, and solving structural economic problems derived from it.

It is important to note that intensifying the rebalancing policies to address factors contributing to unbalanced growth is an inherent need for the high-quality development of China’s economy and to maximize benefits for the majority of the population. In the long run, it will also help address changes in the external environment and enhance China’s proactive position in great power competition. Therefore, from the perspective of implementing coordinated domestic and foreign policies for major powers, this is indeed a strategically advantageous choice.

David Daokui Li, Professor, Tsinghua University, via his WeChat video blog published three days ago, also available on YouTube. It should be noted that his audience there is the general public, not some policy or academic conference.

What impact does this have on China’s economy? Can we overcome this hurdle? It is crucial to clarify that China’s current dependence on the outside world is far lower than it was in 2008. Back in 2008, around 30% of our GDP was tied to exports, but that number has now dropped to 17%. Our exports to the United States, the direct export’s ratio as a share of GDP, has decreased from about 6% during the first wave of trade protectionism under Trump to the current 3% to 4%. So, we have already made significant preparations in various aspects, waiting for Trump to implement this protectionist policy.

Furthermore, our response measures should be numerous. I emphasize the word “numerous” because China’s economy is currently in a position where domestic consumption has not yet been fully unleashed. Why hasn’t it been unleashed? The most important reason, which I’ve repeated many times, is that our local governments’ debt burden is too heavy. Their purchasing power and necessary fiscal spending are not up to par, leading to arrears in many payments. This issue must be resolved quickly. This year, the 12 trillion RMB national debt, a huge number, still has room to grow. We have the ability to increase the national debt by an additional 10 trillion RMB or even higher. Once this is issued, it can be used for direct subsidies for consumption. For example, during the May Day (May 1) Golden Week or National Day (October 1) Golden Week, if citizens spend 1,000 yuan RMB, the government can subsidize 250 yuan RMB. This policy can be used, and once consumption increases and circulates, our fiscal revenue will rise as well.

Another very important point is that many of our policies can still be further adjusted. For instance, the real estate policy can be further adjusted. Major cities are still under purchase restrictions. Why not lift these restrictions? There are also many areas in consumption that have not been fully liberalized. For instance, the mandatory scrapping of motorcycles after 13 years—if this policy is relaxed, many consumers would find the cost of using a motorcycle lower, which would increase their willingness to buy.

Additionally, another measure that should be implemented immediately is to increase the retirement benefits for the lowest-income group among our 1.4 billion people, particularly those over 60 who have never paid into social security and currently receive only 220 RMB in monthly pensions. If we can increase that to 800 RMB, their consumption would rise. This would contribute an estimated 700 to 800 billion RMB annually, which is roughly equivalent to the amount we spend on water conservancy projects each year. These measures can be quickly rolled out, and once in place, their positive impact on China’s economy will far exceed the impact of tariffs.

So, internationally, some economic advisors in Trump’s White House have a very wrong view—they believe that the tariffs will cause much greater damage to China’s economy than to the U.S. This is not the case, because China’s economy is no longer what it was in 2008 or even 2018. Now, there is a high degree of consensus: we must increase domestic demand, with consumer demand being the most crucial. Therefore, I believe the Chinese government will approach the tariff war in the following ways:

First, we have already made our stance clear: if you raise tariffs on me, I will raise tariffs on you. This is to send a clear message to American businesses and the American public, urging them to exert pressure on the White House. Second, we will intensify our policies. The policy directions we have already declared are clear and firm, and we will add to them. It may not reach the level of 4 trillion RMB (stimulus) like in 2008, but it will certainly be higher than the current level. Third, we will engage in firm negotiations. All issues should be placed on the table for discussion. Under these circumstances, I believe that after these adjustments, our stock market should quickly return to a more stable development trajectory.

To reiterate, the central economic conference held at the end of last year, the government work report on March 5th, and the discussions during the Two Sessions have already accounted for Trump’s trade war measures. It can be said that we have made ample preparations in advance, waiting for Trump to implement such policies. Therefore, I urge everyone to remain calm and confident.

Robin Xing, Chief China Economist, Morgan Stanley, speaking on April 9 at the online conference organized by China Macroeconomy Forum (CMF) at Renmin University of China

Via a CMF blogpost

China should strive to achieve the “Two 30” strategy by 2030 to cope with the U.S.'s shift towards protectionism.

The first “30” refers to announcing that, excluding the U.S., China will reduce tariffs to zero on all other countries’ goods within the next five years. Additionally, China will eliminate restrictions on foreign direct investment and market access for its private enterprises, as well as eliminate subsidies for its own industries.

The second “30” is the goal of increasing domestic consumption by 30% by 2030, which would mean adding an additional $3 trillion to the current scale of consumption. Given that the U.S.’s tariff mechanism may persist in the long term, this will result in external trade pressures on China, Asia, and Europe, which have traditionally relied on export-driven, supply-side economies. China’s growth model, dominated by supply-side and industrial manufacturing over the past 20 years, is facing immense challenges. Currently, China is at a strategic crossroads and must decide whether to continue adhering to a supply-side, industrial manufacturing-oriented economy, or shift towards a domestic consumption-driven model, building a more balanced economic and trade system through social welfare reforms.

Some European think tanks have expressed concerns about China. They worry that, under the pressure of U.S. tariffs leading to a reshaped global trade structure and the gradual closure of the U.S. market, China’s surplus capacity products may flood into other countries and regions, putting pressure on Europe, Asia, and South America, making it harder for them to survive. This concern is somewhat reasonable, and it can even be inferred that if China continues to follow an export-oriented manufacturing model dominated by the supply side, countries across Eurasia may follow the U.S.’s lead and introduce trade protectionist policies, ultimately resulting in a fragmented global trade environment similar to the pre-World War II period. This would significantly increase China’s difficulty in expanding its geopolitical space. In contrast, implementing the “Two 30” major strategy would be a more feasible path.

Achieving the target of increasing domestic consumption by 30% by 2030 is both achievable and idealistic, making it a grand strategy. Drawing on the experience of European and American countries in the thirty years after World War II, these nations accelerated their transition to domestic demand-driven, service-based economies by strengthening social security, improving labor education levels, enhancing public services, and reinforcing innovation. When facing U.S. tariff bullying, many believe that the U.S., as the largest global consumer market, is in a dominant position, and other countries, as suppliers, must accept changes to the rules or risk losing out. However, this view is outdated. Historically, the evolution of economic entities and strategic decisions shows that the positions of parties A and B are not fixed. With China’s increasing income levels, changes in development concepts, demographic shifts, and technological advancements, if the decision-makers can implement reforms to strengthen social security, improve workers’ education, build public welfare, and perfect social security for migrant workers, farmers, and flexible workers, China could accelerate its transition to a domestic demand-driven economy, rather than merely positioning itself as a supplier.

Increasing domestic consumption by 30% by 2030 has two significant implications. First, feasibility. According to my team’s calculations, if the aforementioned social security system reforms are implemented to support the transition to domestic demand, a 30% increase in domestic consumption by 2030 with an average annual growth rate of 5.4% is achievable. Second, strategic significance. The U.S. imports a total of $3 trillion worth of goods annually, and its trade protectionist policies are gradually closing off this market to global trade partners, raising global concerns about a $3 trillion demand gap. Currently, China’s domestic consumption is $10 trillion, accounting for half of its GDP. If consumption increases by 30% over the next five years, this would add $3 trillion and help fill the global demand gap caused by U.S. protectionism, offering market opportunities for companies in Europe, Asia, and other regions. Moreover, the “Two 30” strategy also includes accelerating the opening up to countries outside the U.S. over the next five years, reducing tariffs, market access restrictions, and domestic industry subsidies to zero, providing vast space for the global market and using China’s domestic demand growth to fill the gap caused by the contraction of the U.S. consumer market.

Hua Sheng, Vice President of China Society of Economic Reform and senior Professor at Southeast University

via Caixin

In the second half of 2024, when the central government launched a comprehensive economic growth policy package, I analyzed that this package could be understood and broken down into four key measures. The first two measures can stabilize and trigger a market rebound, while the latter two can drive a market and economic turnaround.

The first measure, financial support for the stock market, encountered obstacles. Fortunately, the rise of the technology and innovation wave, represented by DeepSeek around the Chinese New Year, temporarily alleviated these issues. Today, overcoming these obstacles and implementing the measures is clearly timely for stabilizing the stock market in the face of external market shocks.

The second measure, utilizing central government fiscal resources to resolve local government debt, has progressed smoothly under the nation’s strong attention and the coordination of relevant departments, achieving considerable results and is still being deepened.

The third measure, which focuses on fully releasing market vitality, vigorously developing the private economy, and restoring and stabilizing entrepreneurs’ confidence, has also seen substantial efforts by the government. In particular, the private enterprise leaders’ symposium held by the central government not long ago has had a significant impact, greatly improving public expectations and stabilizing the confidence of private entrepreneurs. However, much work remains to be done by ministries and local governments to further implement these measures.

The fourth measure aims to address the stabilization and revitalization of the real estate market and fully boost domestic demand. This is also crucial in the context of the intense tariff war and limited external demand. The key to truly developing China’s domestic economic circulation is to create a huge internal demand that can completely replace the external demand that is obstructed and shrinking. Measures of moderate strength will clearly not suffice; a major project needs to be launched to address the public rental housing and equal social welfare treatment for China’s contemporary industrial workers, primarily migrant workers and their families, in their places of employment. This would create tens of trillions in internal demand over the coming years. This initiative is not only the focus of implementing the central government’s new urbanization strategy but also the foundation for the long-term prosperity of the real estate market and a fundamental measure to counter the tariff war.

If more is desired, I recommend the April 9, 163-minute online conference organized by China Macroeconomy Forum (CMF) of Renmin University of China, where the video recording is available in Chinese. Their panel includes Liu Xiaoguang, Yao Yang, Liu Yuanchun, Yu Yongding, Xu Xianchun, Yang Ruilong, and Robin Xing.

As you have read above, I’ve excerpted comments made by Yao Yang and Robin Xing at the panel because their full remarks are readily available.

Yao Yang says Chinese companies will invest massively abroad