Commentary: Trump’s New Playbook to Target Global Trade and Financial Systems

On August 12, 2024, China and the U.S. agreed to suspend the enforcement of their reciprocal 24% tariffs for 90 days, amid ongoing trade tensions. According to U.S. Secretary of Commerce Howard Lutnick, current U.S. tariffs on Chinese goods average around 55% (with some sources claiming 54%). This tariff blockage includes reducing the previous 34% “reciprocal tariffs” to 10%, a 20% penalty on fentanyl, and the retention of the 25% tariffs imposed during former president Donald Trump’s first term. Economic experts believe that while businesses have largely absorbed the effects of the initial 25% tariffs, the increased 55% tariff rate’s impact is still uncertain and requires close monitoring to form an appropriate response. [para. 1]

Trump’s new tariff policy for his second administration divides trading partners into three main groups. The first is a universal 10% baseline tariff imposed on all imports, regardless of whether the country has a trade deficit or surplus with the U.S. With 2024 U.S. imports projected to stay at $4 trillion, this would generate $400 billion in tariffs annually, with estimates for the full year around $300 billion due to staggered implementation. Over a decade, average annual tariff revenues of $330 billion could potentially offset $4 trillion in tax cuts. [2,3]

The second category introduces a 15% tariff specifically for U.S. allies such as Japan, South Korea, and the EU, unless they adopt zero tariffs on American exports. However, the legal details remain unresolved, especially regarding sensitive sectors like Japanese agriculture. [para. 4]

The third tier targets developing and least-developed countries with a 20% tariff, but only if they implement zero tariffs for U.S. exports. In addition, a severe 40% “transshipment” tariff is imposed on goods passed through these countries to prevent circumvention, posing challenges for multinational regional free trade agreements like the Regional Comprehensive Economic Partnership (RCEP). This 40% toll is expected to disrupt existing and future open trade frameworks. [para. 5]

These tariffs are reshaping global trade. Trump’s policies aim for the U.S. to enjoy zero-tariff access for its goods internationally while restricting others, subverting the World Trade Organization (WTO) model and putting immense pressure on multilateral institutions. Trump’s administration has ordered comprehensive reviews of U.S. participation in organizations such as the WTO and IMF, suggesting a potential move toward a pre-GATT bilateral negotiation framework, posing serious risks for China. The IMF estimates that decoupling could cost the global economy 7-12% of GDP. [para. 6]

In 2024, China’s total goods and services trade reached $7.2 trillion, closely rivaling the U.S. figure of $7.3 trillion. China’s largest trade partner, ASEAN, saw a trade volume of nearly 7 trillion yuan ($965 billion). Suggestions for China include developing response strategies to maintain the integrity of RCEP and ASEAN cooperation as the existing international trade system faces disruption. [para. 7]

On the financial front, in January 2024, the U.S. Securities and Exchange Commission approved spot Bitcoin ETFs, marking a change in regulatory attitude. On July 18, 2024, President Trump signed a bipartisan stablecoin bill designed to bolster the U.S. dollar’s international standing and lower federal financing costs. The new dollar stablecoin requires reserves in U.S. dollar cash and short-term Treasuries, with robust regulatory oversight, and excludes algorithmic or Bitcoin-pegged stablecoins, consolidating centralized U.S. control and reflecting a new phase of dollar hegemony. Stablecoin transaction volume reached $26.7 trillion in 2024, with expectations for growth in 2025. These changes underscore the urgency for policy responses in both trade and international settlement mechanisms. [8,9,10,11,12,13]

Overall, the Trump administration’s renewed trade and financial policy thrusts are inducing profound changes in the global system, requiring China to adapt by enhancing risk awareness and strengthening policy foresight. [para. 14]