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Global trade in a world of growing protectionism
As barriers to trade are established, there is a growing focus on the impact to China’s economy and its future role in the evolving global trade system.
The standout issue for the global economy in 2025 is the US introduction of a wide-ranging programme of tariffs. Many countries across the world are affected and the future of global trade is highly uncertain. This is an issue of crucial importance to China, as the US represents one of the most important export markets for the world’s second largest economy.
The HSBC 12th Annual China Conference assembled a panel of trade experts to share their insight into this all-important economic topic: exploring the thinking behind the trade tensions, the impact it has on both China and the US, as well as the broader outlook for the global trade system.
Rational responses
Professor Jiandong Ju, Chair Professor, PBC School of Finance, Tsinghua University, shared his economic research into the trade dispute. The main finding is that Washington is acting in a rational manner by imposing tariffs, as the policy results in increased welfare for the US.
This is because the US is a large economy with a strong technology sector. This means that it benefits from domestic economies of scale, with positive spillover effects from technology spreading across the multiple sectors.
And from China’s perspective, Prof. Ju’s analysis found that Beijing is also acting rationally by retaliating with its own tariffs, as these measures reduce the negative effects of US tariffs. He pointed out how China is in a strong position to counter with its own trade barriers. Compare this with the EU, where retaliatory tariffs could be met by the US withdrawing its security guarantee on the region.
There was, however, some scepticism among the panellists that US tariff policy will succeed in one of its goals: the reindustrialisation of its economy.
I don’t think the tariffs will help much because the development of manufacturing depends on a large-scale economy. But if the US isolates itself from the rest of the world, then US manufacturers will lose that scale.
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Assessing economic impact
HSBC calculations show that each additional 10% of US tariffs on Chinese goods will result in a 0.3 percentage point of GDP loss in China. This is not linear, because as tariffs become very high, there is a potential scenario where there is no trade between the two countries. In that case, the maximum would be a 2.5 percentage point reduction in GDP.1
US companies could be indirectly impacted by the China tariffs, especially those firms that are dependent on Chinese-made goods where there are few alternative suppliers.
Over the last decade, China has moved up the value chain and is now exporting a lot of the intermediate goods that other companies rely on to produce their final products. The high costs of these goods could be detrimental to some US businesses.
The comprehensive nature of the current trade war exacerbates supply issues for US companies, as tariffs have been added to many of China’s competitors. A US company looking to substitute its Chinese goods with alternatives from South Korea or Vietnam will also have to pay tariffs on their imports. So in this respect, China is relatively better off than it would be if it was the only target of US tariffs.
Resolving tensions
So far, trade talks between China and the US have only halted the addition of further high tariffs on each other’s goods. There is currently an ongoing truce in place, which was extended for 90 days in August. The next step would be to negotiate a deal that puts the trade relationships on a firmer footing.
I’m very constructive about a potential US-China deal. I think they are likely to reach an interim deal, which goes beyond trade and also includes some aspects of investment.
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She described a pragmatism in the talks between the two countries, which she attributes to the measures that each country has in place to impede progress in key sectors.
On the US side, there are export restrictions on semiconductors that limit China’s access to the high-end chips needed for AI; while China introduced rare earth export restrictions, reducing US access to raw materials that are essential in everything from the defence to the automotive sectors.
But even if a deal between China and the US were to be reached, there are still longer-term concerns over how global trade will evolve in the coming years in a world of freshly introduced trade barriers. Such worries are sharpened by the US’ critical attitude towards the World Trade Organisation (WTO). In March, Washington paused its contributions to the global trade institution.2
Prof. Tu said that the WTO is still a valuable platform for the rest of the world, which other countries remain committed to.
The rest of the world needs to stick together. If other countries can promote trade liberalisation and make a larger world market, then the US could possibly come back.
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HSBC 12th Annual China Conference
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