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Drawing from Shakespeare’s Richard III, our August 26 issue, titled The Summer of Discontent, foresaw a global tariff conflict. On March 14, beneath the final full moon of the northern winter, spring arrived with a full-blown trade war.
In response to new US tariffs affecting more than €18 billion of EU exports, the Commission is putting forward a package of countermeasures on US exports. They will come into force by mid-April.
In total, the EU countermeasures could apply to US goods exports worth up to €26 billion, matching the economic scope of the US tariffs.
It’s unlikely that the UK, Switzerland, Mexico, Japan, or Canada could compensate for the decline in EU wine exports if retaliatory tariffs from the U.S., China, or both are imposed.
These ten individual products account for €13 billion in imports, representing half of the impact targeted by the European Commission’s tariff countermeasures.
Exports to the EU remained flat, while imports fell by 6%, pushing the surplus to $42 billion from $39 billion a year earlier. Annualized, this would suggest a trade surplus for China with the EU in 2025 well above a quarter of a trillion USD.
Brazil and the U.S. together accounted for 92% of China’s soybean imports in 2024. Although China’s overall soybean imports fell by 11%, the decline was much sharper for the U.S. Imports from Brazil dropped by 11% in value, while imports from the U.S. plummeted by 26%.
We foresee that China might offer to increase soybean imports from the U.S. by, say, 50%. For China, the effect would be neutral—such an impressive increase would still result in import levels lower than in 2022. Yet, both sides could frame it as a win-win of sorts, with the usual proclamations and blah blah.
Last year, China footed a $53 billion bill for soybean imports
China is sticking to its playbook, continuing to deny the existence of overcapacity, even though it’s well aware of the issue. Instead of addressing it directly, China plans to shift its foreign trade strategy, aiming to get other countries to absorb this excess capacity. A key part of the plan is avoiding tariff wars through the promotion of offshore trade, all while trying to maintain a large trade surplus.
To tackle the growing problem of unemployment, China is focusing on absorbing 12 million new graduates into the workforce, largely through the gig economy, even if that means many will end up delivering parcels. This fits into the broader strategy of solving the “neijuan” issue—rising internal competition—by ramping up exports to the EU, the U.S., and other major markets, while also increasing exports with the Global South. Although this plan is presented as new, it’s essentially a repackaging of old strategies.
A key part of the response to the neijuan issue is the introduction of “patience capital,” a concept that emerged during the Third Plenary Session in July 2024. However, this is unlikely to resolve the problem in the long term, as neijuan isn’t a glitch in China’s economic system but rather a built-in feature of it.
At the same time, China is confronting the reality that its Total Factor Productivity is on the decline. Improving productivity is becoming harder, especially given the growing tension between boosting employment and improving efficiency. Policies that encourage companies to hire more workers by offering perks conflict with the goal of improving productivity.
On the economic front, China still hopes that M2 growth would align with nominal GDP growth, but that didn’t happen in 2024. In fact, nominal GDP growth was actually lower than real GDP growth, a result of a low Consumer Price Index (CPI) and weak consumption. While nominal M2 growth exceeded 7% in 2024, nominal GDP growth came in at just 4.2%, highlighting the challenges China faces in balancing monetary expansion with economic growth.
One of us noticed the use of the term 纵深, both as a noun and an adjective. More commonly used in a military context, it adds a metaphorical weight to the discussion, suggesting that the topic is really serious, layered, and being explored from multiple angles.
According to the National Bureau of Statistics, China has about 200 million gig workers, accounting for about 23 per cent of the workforce.
In February 2025, the national consumer price index decreased by 0.7% year-on-year and dropped by 0.2% month-on-month. From January to February, the national consumer price index declined by 0.1% compared to the same period last year.
Government CPI target for 2025 is at 2%.
As the Trump administration continues with a series of tariff measures, China approves the promotion of offshore trade at the Two Sessions.
In essence, offshore trade refers to the practice where Chinese companies use offshore financial policies to conduct goods or service transactions abroad, without the goods actually passing through Chinese customs.
As an example, imagine a Chinese manufacturing company selling products (i.e., exporting) to a customer located in another country, but the goods are shipped directly from a factory in Vietnam without passing through Chinese customs. The Chinese company completes the transaction, settlement, and tax processing through a digital platform, benefiting from the policy advantages of offshore trade that will be set up by the Chinese government.
A strong correlation suggests a potential relationship worth investigating—whether it’s causal, influenced by a third factor, or coincidental. We do not believe is coincidental, frankly.
In the first two months of 2025, China imported equal amounts from both India and the UK but exported twice as much to India as it did to the UK. Over the past three years, China has accumulated over $300 billion from India through its trade surplus. While the surplus was below $50 billion in 2020, it surged above $100 billion by 2024.
Last week, we reported on Hutchinson’s deal with BlackRock to transfer its stake in dozens of ports worldwide, including the two in Panama. Assuming that being based in Hong Kong would shield them from political fallout with the mainland government now seems like a naive decision, given the backlash from Chinese state-controlled media.
Expect repercussions—this situation is far from fully unfolded. Thirty-three years ago, Premier Li Peng almost proclaimed Hutchison’s Li Ka-shing, born in Guangdong province in 1928, as one of us at the ceremony where Hutchison was awarded a 50-year lease to build and operate the Yantian port in Shenzhen. Check the picture.
In May 2025, it will be 50 years since the European Economic Community (the predecessor of the EU) formally established diplomatic relations with the People’s Republic of China. The month also marks the 75th anniversary of the Schuman Declaration.
Xi will be with his friend Putin at Moscow’s Red Square on those dates. The EU can’t help but notice that it’s Xi’s actions, not his rhetoric, that truly matter.
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