The comprehensive reciprocal tariffs initiated by Trump are a huge signal that will impact global trade and the economic order in the future. From the perspective of ordinary people like us, how should we assess the implications of this for our own interests, and how should we predict the future direction of the tariff war? Let me share my general thoughts on this matter.
I asked myself a series of questions:
Question 1: Is this good or bad for my core interests?
Answer: Of course, it’s bad. It brings enormous entropy to my life’s vision.
Question 2: What should I do?
Answer: My core assets and interests are based in China. This includes not only financial assets but also the relationships, emotions, and meaningful assets that I value. So, China is my home system.
Since this is the case, let’s look at how the largest players in the system, whose interests align with mine, are responding to this impact. According to the “smart pig” game theory model, the optimal strategy for the smaller pigs is to wait and follow the actions of the big pig.
Question 3: Who is the largest player in the home system with the most core interests?
Answer: The Chinese government.
Question 4: How is the Chinese government responding to the reciprocal tariffs?
Answer: The Chinese government’s response is “we will go to the end with you.”
On the day after the US announced reciprocal tariffs, China announced countermeasures, becoming the first country in the world to propose retaliation. Not only did China impose a 34% tariff on all goods imported from the US, but it also placed a number of American companies on the unreliable entities list, suspended imports of some US goods, and implemented rare earth export controls. According to Xinhua, China’s countermeasures were equivalent to “11 arrows.”
By April 9th, China further escalated the retaliation by raising tariffs on US imports by another 50%.
Overall, China’s stance is very firm and strong.
Question 5: Was China’s reaction in 2025 impulsive and emotional?
Answer: No, China had been preparing for this for a long time.
In March, Beijing held the China Development Forum 2025 annual meeting. During the opening ceremony, Premier Li Qiang of the State Council said, “China has prepared for possible unexpected external shocks, and will introduce new incremental policies if necessary to ensure the stable operation of the Chinese economy.” Given that Trump has repeatedly used high tariffs against China as political capital in his 2024 election campaign, we can infer that this reciprocal tariff is part of the “unexpected external shock,” and China had been preparing for at least six months.
Looking back even further, as early as the 2020 Central Economic Work Conference, China began to discuss supply chain security.
Based on this information, we can conclude that China’s policies to handle this tariff war are consistent and well-prepared.
We can also add two observations to appreciate this “preparedness.”
One piece of news is that since April 7th, Hong Kong Chief Executive John Lee and Financial Secretary Paul Chan have deliberately mentioned in various occasions that, during this tariff war, Hong Kong remains a free port and a separate customs territory. It will not follow mainland China in imposing the 34% tariff on US goods. Over the past two years, Hong Kong has been actively attracting investment and developing emerging industries.
What does this mean? Clearly, they are reminding businesses involved in import/export trade with the US that Hong Kong is a place for flexibility.
Another piece of news is that, on April 8th, the Chinese State Administration of Taxation issued a notice reminding foreign travelers that they can now get a tax refund for shopping in China, applicable nationwide.
What does this mean? If you buy Chinese-made goods in the US, you’ll face a 125% tariff. Instead, why not visit China as a tourist, buy some local products like free-range eggs or drones, and you might even earn back your flight ticket. See, the response to the reciprocal tariff is even linked with promoting inbound tourism.
Question 6: Are our chances of winning high?
Answer: In the short term, we will undoubtedly suffer significant losses. After all, with the 125% tariff rate currently imposed on China, it essentially freezes China’s exports to the US. In 2024, China’s total exports to the US amounted to $524.6 billion, accounting for nearly 3% of our GDP.
Can I avoid this loss? It seems there is no way around it. As I mentioned earlier, my core interests are here, I can’t move them, nor do I want to. So, I can only prepare myself to bear the cost. For instance, exports will definitely be heavily impacted in the short term. What we can do is to enhance the likelihood of successful decision-making at the micro level to minimize the damage.
However, on the one hand, I bet that this tariff rate won’t last long; on the other hand, looking at the long-term history, China has never lost in similar trade wars.
According to statistics, the US currently accounts for about 15% of global import demand. Even if it completely stops importing, the other 100+ trading partners globally will likely recover from this export loss in about five years. So you might know, on April 8th, Chinese Premier Li Qiang spoke with Ursula von der Leyen, President of the European Commission, about increasing trade cooperation between China and Europe.
In 2018, Trump also launched a tariff trade war against China. At the time, China’s response was relatively mild. Moreover, in the last round of trade wars, the costs of the US tariffs on China were almost entirely borne by the US itself.
DJI, which manufactures drones, has been subject to increasing sanctions from the US since 2016, first banning government and military procurement, then restricting its access to key components, and by 2024, even banning new products from entering the US market. However, DJI still maintains over 70% of the global market share, and even its US market share has not only remained intact but even increased.
Similarly, Huawei has gradually lost its North American market since 2018, and Chinese electric vehicle companies have almost never entered the North American market, but this hasn’t stopped them from becoming stronger in global markets outside of the US, also helping to build the Chinese semiconductor and electric vehicle industries.
How did this happen?
Two driving forces played a key role: one is that China’s domestic demand is gradually becoming more effective, and the internal economic cycle is accelerating; the other is that China has the production capacity and goods available in the global market, making it a hard seller to ignore. Over the past seven years, Vietnam, Mexico, and India have all tried to become an alternative to China in the global supply chain, but none have succeeded.
Having outlined my understanding of the pros and cons of this tariff war, let’s now turn our attention across the ocean to try to understand the logic behind Trump’s push for the trade war.
Question 7: What is Trump fighting against by launching this comprehensive, reciprocal tariff war?
In simple terms, we understand this issue with a basic assumption: the fundamental motivation of a rational person is to prevent entropy increase. Everything Trump has done during his presidency, including these reciprocal tariffs, is part of his effort to counteract the various disappointments of his presidential career.
So, what exactly is Trump trying to combat with this tariff war?
Answer: Trump has a lot on his mind. But in my view, the top three concerns are:
- Maintaining his base’s confidence in him.
- Easing the US debt crisis.
- Re-industrialization and the repatriation of manufacturing jobs to the US.
The reciprocal tariffs are not without harm to the US itself. After Trump announced the policy on April 3, JPMorgan estimated that this tariff measure had raised the likelihood of a US economic recession in 2025 from 40% to 60%. Goldman Sachs also titled their research report “US Economy: Recession Countdown.” After Trump announced an additional 50% tariff on China on April 8, JPMorgan’s model indicated that the probability of a US recession had surged to 79%.
Knowing that this action would harm his own country, Trump still chose to do it, which suggests that the harm from not doing it would be even greater.
What is the greater harm? The risk of a US debt crisis.
Ray Dalio, founder of Bridgewater Associates, recently warned that the US is approaching the “end of the long-term debt cycle.” By 2024, the US federal government’s debt has surpassed $36 trillion, with nearly $9 trillion due within the year. Currently, the US government is paying $1.13 trillion in interest annually on its debt, which accounts for 13.1% of federal spending.
If current trends continue, by July 2025, the US Treasury will run out of cash, and a debt default could occur. This is why Trump has set the tariff exemption negotiation period with other countries to just 90 days—he needs to secure resources before a debt default happens.
As a result, foreign investors have increasingly lost confidence in US debt, reducing their holdings of US bonds and increasing their purchases of gold, a move known as “de-dollarization” to hedge against the collapse of the US debt system. This means that newly issued US bonds may not find buyers, forcing the US to raise interest rates, which only increases the pressure on the government’s debt repayment, accelerating the collapse of the bond market.
Increasing tariffs may trigger an economic crisis; not increasing tariffs could trigger a debt crisis. Either way, the economic crisis is inevitable. Trump, of course, cannot allow a debt crisis to happen on his watch. Thus, this tariff hike is seen by many as a gamble to risk an economic crisis in order to avert a debt crisis.
Lake Manor Agreement
Beyond this, there is another important angle to understand Trump’s reciprocal tariffs.
Since the end of 2024, after Trump’s election victory, there have been reports from the political and financial world that Trump and his administration have been discussing something called the “Lake Manor Agreement.”
The Lake Manor Agreement is not a specific treaty but rather a framework for restructuring the global economic governance system, starting from “America First.”
The comprehensive reciprocal tariffs might very well be part of this “Lake Manor Agreement.” According to Wall Street leaks, one idea in the agreement is to use tariff exemptions as a condition to require foreign governments to convert their short-term US debt holdings into ultra-long-term bonds, such as 100-year bonds with 0% interest, in order to reduce the interest burden on US debt and help ease the debt crisis. At the same time, high tariff barriers will push companies seeking to sell products in the US to build factories on US soil.
What if other countries don’t agree? High tariffs will be used to raise inflation, thereby diluting the debt.
This is why, before announcing the tariffs, Trump deliberately allowed a 5-day grace period to invite countries to negotiate terms with him. What terms? For example, countries might promise to buy more US debt, more energy and agricultural products, pay for US military bases and nuclear protection, or grant US companies more favorable access to their markets.
The Chinese teaching passed down from the Warring States period says: “To serve the Qin with land is like adding fuel to fire, but the fuel never runs out and the fire never goes out.” Giving in will leave you with nothing.
From the “Lake Manor Agreement” perspective, we can also understand why Trump’s reciprocal tariffs are broad-based, not just targeting China. Bianco Research, a Wall Street research firm, recently warned its clients that Trump’s team is likely to completely restructure the global financial order in the next four years, and they need to be prepared.
Question 8: Does Trump’s plan have a high chance of success?
Answer: I think the chances are low. After all, the 2018 trade war also relied on tariffs as a weapon, and Trump did not win.
Trump faced numerous setbacks in his first three months in office, from failed peace talks on the Russia-Ukraine war to unsuccessful attempts to cut 1 million federal workers. He also failed to force TikTok to sell, and his attempts to annex Canada and Greenland led to broken relationships with allies. Though he made a fortune from issuing cryptocurrency, its value has since dropped to a tenth of what it was at the start. It’s hard to see continuity in his policies.
Even with the 2024 reciprocal tariffs, Trump’s enthusiasm seems low. Before announcing the tariffs in late March, he publicly invited China to negotiate tariff reductions in exchange for TikTok. After the tariffs were implemented, he repeatedly invited China to discuss. Even after China initiated a 34% reciprocal tariff, Trump continued to wait for China’s call on social media.
Therefore, my personal conclusion is that there are doubts about the success of his policies.
Moreover, even if China had not responded decisively, the US would still have struggled with the inflation caused by high tariffs. But now that China has firmly resisted, this back-and-forth may lead the world to see China in a new light. Thanks to China’s strong resistance, other countries may experience less suffering.
Question 9: Is there anything worth worrying about now? What is the biggest concern?
Answer: Personally, I am most concerned about two issues:
The first is that Trump, using tariffs as a negotiating weapon, successfully coerces a group of countries to form a “zero-tariff anti-China alliance,” meaning countries in the alliance would have zero tariffs on each other but impose high tariffs on China. This could truly impact China’s global efforts outside the US and create a new danger for us.
The second concern is that the Trump administration might use unknown methods to shift
US manufacturing back to US soil, further tightening the restrictions on China’s manufacturing exports.
In short, tariffs won’t solve the US debt problem, but they will cause widespread harm. The game now is one of survival for China. The strategy we adopt will largely determine how big this crisis gets.
