E2025007                                                                                            2025-04-22

Lu Feng

Abstract:

This paper takes the recent intensification of Trump 2.0 trade policies and the changes in the external economic and trade environment as the background. It systematically observes the characteristics of China’s surging trade surplus and structural external imbalances during her 14th Five-Year Plan period. It also analyzes the rooting causes of these characteristics from both international and domestic perspectives, especially focusing on the domestic economic pattern of strong supply verses relatively weak demand. It further explores the policy options for countering the US tariff war and promoting domestic economic rebalancing. In response to the current situation where Trump is increasingly provoking a tariff war, China should adopt a dual approach of countering bullying and opposing decoupling. This includes joining hands with BRICS members, developing countries, and non-US Western countries (i.e., the traditional US allies) to resist the US tariff war policies. Meanwhile, China should enhance its economic and industrial technological levels and consolidate the momentum of productivity catch-up. Especially it should confront the internal and external imbalances caused by insufficient domestic demand and weak consumption, and vigorously implement a rebalancing strategy through increasing household income, promoting consumption and expanding domestic demand. This will solidify the foundation for China's sustained economic development and thereby more effectively counter the US unilateral trade policies and better cope with external environmental changes.

Keywords: Trump 2.0 Policies; Trade Surplus; Insufficient Domestic Demand; Tariff War

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This article is based on the author’s remarks delivered at two public lectures and several internal discussions organized by the National School of Development at Peking University. The two public lectures were the China Economic Observation session held on March 16, 2025, and the 34th Chengze Forum on March 28, 2025, titled “The Potential and Strategy of a Pivotal Year and a Reading of China’s Economy 2025.” The author wishes to thank Shi Xianjin, Li Shuangshuang, Pan Song, Li Jiang, Liu Liu, and others for their valuable assistance.