Nie Huihua urges low profile in trade war, predicts more stimulus policies ahead
Economics Professor at Renmin University: China's trade war victory depends on stable employment; A complete break with the U.S. is unrealistic.
Huihua (Fred) NIE (聂辉华) is a Professor at School of Economics, Renmin University of China. He earned his degrees in China and completed a year of postdoctoral research at Harvard University under the guidance of Nobel Laureate Professor Sir Oliver Hart.
Against the backdrop of the trade and tariff war, Nie discusses China's economic outlook and youth responses to the crisis in an interview with Zhen Gu Lab (真故研究室).
Below is the translation of the full interview.
Q1: Why is Trump so fixated on imposing tariffs, and what is he trying to achieve? Do you think he will succeed?
A: Trump believes that the U.S. buys more from others than it sells. I think tariffs are just a tool to achieve trade balance and retain U.S. manufacturing jobs.
However, it's unrealistic to expect a quick turnaround in reshaping U.S. manufacturing in just a few years. The cost of labor in the U.S. is high, and bringing manufacturing back home would go against international trade advantages. On top of that, wealthier individuals have become accustomed to a certain standard of living and may not want to go back to harder work. So, Trump needs to use other methods.
When Trump first launched the trade war, Chinese products seemed to get more expensive. However, "transshipment trade" allowed goods to flow through other countries like Vietnam or Mexico before reaching the U.S., minimizing the tariff impact. As a result, the U.S. didn't face significant inflation, and the average American didn't experience a noticeable price increase. This made the cost of launching the trade war seem relatively low.
Looking ahead, Trump's policies may achieve some goals. Smaller countries may yield because they rely heavily on exports to larger nations but can't afford the larger countries' goods—like Vietnam. But China and the EU are less likely to yield, as they have both the strength and the market.
Q2: How do you assess the impact of President Trump's tariff policies on China? And how should we evaluate China's countermeasures? What do we hope to achieve?
A: I believe it will affect both China's international strategy and domestic macroeconomic policies.
On the international front, there's a clear rift between the U.S. and the EU, which presents an opportunity for China. This means we might need to focus more on strengthening ties with Europe to balance the U.S. It's a bit like a game of cockfighting—when one side wins, the other side will back down.
As for China's countermeasures, if exports face obstacles, we should focus on boosting domestic demand. This would be the true implementation of the domestic demand cycle.
As for countermeasures, I think the best approach is to introduce hedging policies alongside them. Concrete actions are needed for better results. For example, there will likely be policies soon to help expand domestic demand. We need to talk tough while also implementing strong policies to achieve real results.
Q3: Recently, global stock markets have been in a continuous decline, and China's capital markets were also affected. How do you view this situation?
A: First of all, the global stock market drop is a systemic risk, and honestly, there's not much ordinary people can do about it. Even if you sell, what will you buy? And if the market rebounds later, what will you do then? So, in this situation, it's better to watch and act less. The key is to observe the market's behavior over the next few days. U.S. markets generally can't sustain long-term declines; they'll face significant economic and social pressure.
After some time, if some countries do well while others struggle, it will show that different countries have different strategies to cope. If the global markets are all in decline, it's actually not as scary, because once the situation improves, everyone will recover.
Q4: Recently, a major media outlet encouraged the public to "focus on their own affairs." How do you interpret the deeper meaning behind this statement?
A: It's about focusing on domestic issues and implementing a domestic circulation strategy. At worst, we can be independent and self-reliant, which is actually a source of strength and resilience for China.
Of course, I also believe there should be strategic flexibility. The best outcome is a competition without breaking—it's important to fight, but if things escalate too far, it's bad for both sides. In the end, negotiations will happen, and compromise from both sides could lead to the best result.
Q5: Which industries in China will be most affected by Trump’s policies, and how should ordinary Chinese, especially young people, overcome the potential difficulties in the coming months?
A: The industries most affected will definitely be export-driven sectors, such as electronics, foreign trade in pharmaceuticals, clothing, and more.
So, how should young people cope with this challenge?
People usually face three types of challenges: first, black swan events, which are low probability and unpredictable; second, gray rhino events, which are highly probable but predictable; and third, great white shark events—common, powerful, and likely to occur, though we can’t predict when exactly.
In this situation, the first step is to shift our mindset from a passive, habitual way of thinking to a more open approach. The second step is to shift focus from asset allocation to risk management. Specifically:
Rule 1: Prioritize survival over profit (low-risk, low-return might sometimes be better than high-risk, high-return). Think with a bottom-line mindset.
Rule 2: Always have a backup plan, don't go all-in
Rule 3: Know when to retreat, not just push forward relentlessly.
Rule 4: Save more and borrow less, instead of relying on future income. Focus on developing a solid, conservative plan rather than aggressively expanding.
Q6: Yesterday, Microsoft’s outsourced team in China was the first to disband. Is this purely for economic reasons, or is it part of a broader trend?
A: This is just the disbanding of one team, and I don't think we should overstate the significance of it. All multinational companies face a loyalty dilemma—it's hard to please both the host country and the home country, especially when there's geopolitical or ideological conflict between the two. For businesses, international political risks are the hardest to manage because they aren't sovereign entities. Even if Apple lobbies Trump, it’s unclear how much impact that would have.
Q7: Some believe this tariff war harms both Chinese and American people, and it’s just a matter of who can endure longer. While the U.S. has already seen a rush to buy goods, Chinese people are considered to have savings, making their lives relatively stable. What's your take on this?
A: This view is somewhat misleading. It’s not accurate to say that Chinese people are simply used to hardship and should just accept it. That’s not right and doesn’t make sense. Moreover, just because one person can’t endure doesn’t mean others can’t. The goal shouldn’t be to outlast the other side—it should be to improve your own situation. We shouldn’t use the concept of suffering to treat ordinary people as expendable.
Q8: Some argue that Trump's policies won't change China's long-term economic fundamentals or its stock market's positive trend. What’s your view?
A: The real question is, how long is "long-term"? China is already integrated into the global economic system, so both external and internal factors will play a role.
If we're talking about one or two years, then clearly, it will have an impact. The U.S. is the largest buyer in the world—how could its policies not affect China’s economic fundamentals? Both external and internal factors will influence China's economy.
Q9: Recently, many people sold their homes to hold cash, but now it seems that property is still more valuable than cash. What's your view?
A: I agree that property tends to hold its value better than cash. Cash is difficult to preserve—stimulating domestic demand can even lead to inflation. Once currency depreciates, you're left at a disadvantage.
On the other hand, property is different. You can buy a property that's unique, but it's hard to have cash that's different from others. Sure, you could buy gold, but its market is limited, and it's not as convenient for trading.
Of course, the value of property depends on many factors like location, amenities, and local development potential. It's not easy to compare directly. But one thing is clear: young people today should avoid using high leverage to buy property.
Q10: Some suggest that China should consider "de-Americanization" and "de-dollarization," using strategic competition to gain more leverage. What's your view on this?
A: This is unrealistic. The focus should be on collaborating with Europe to counterbalance the U.S. and gain more influence in shaping global rules.
De-Americanization and de-dollarization are not practical. Our economy relies heavily on exports, which is a crucial pillar. Giving up this pillar would mean abandoning the benefits of globalization. While there are challenges, overall, it still aligns with the main direction.
I don’t think it’s realistic to completely break ties with the U.S. A better approach is to work with Europe to limit U.S. influence, gaining more leverage in the process. In the past, we adapted to the rules and learned from them, but now we may need to gradually take part in creating these global rules. This depends largely on our own strength.
As for de-dollarization, we shouldn’t let emotions drive our thinking.
China is already diversifying in steps. But if we’re not using the dollar, which currency today is more stable and reliable globally?
Some believe China should use the yuan more in international trade settlements. Objectively, this depends on China's economic strength and global recognition. For the yuan to become an international currency, we would need to gradually open our markets. But right now, the market isn't fully open, and we can't just focus on the benefits of yuan internationalization without considering the potential negative impacts.
As economist Paul Krugman has pointed out, it’s impossible to simultaneously achieve independence in domestic monetary policy, stability in exchange rates, and full capital mobility. This is the "impossible trinity."
Q11: Some argue that to win the trade war, China must focus on hard technologies like artificial intelligence and chips to gain a broader advantage. What’s your view on this?
A: I completely disagree. Hard technologies like AI are just one indicator of economic strength, and because they’re high-profile, they tend to attract attention.
The real issue is employment. Jobs are the foundation of stability—if employment is stable, the nation is stable; if the youth are stable, employment remains stable.
In fact, AI might not create more jobs; it could actually eliminate some. China’s past experience of being beaten due to technological lag makes us think that having advanced technologies will automatically bring wealth, but it's not that simple. We shouldn’t blindly worship technology.
In 2024, Nobel laureates Daron Acemoglu and Simon Johnson pointed out in Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity that technological progress doesn't necessarily lead to productivity growth or shared prosperity.