Finding Economic Certainty

Core Viewpoints:

1. For that ray of light. Tariff disturbances, a bewildering world. Recently, the fluctuations in U.S. tariff policies seem to reflect the contradictions between internal logic and economic reality. Although Trump's actions remain full of uncertainty, the objective impacts they induce may already be certain. For various countries, whether micro entities or macro policies, they will also respond with certainty.

2. Recently, Trump's approval ratings have dropped rapidly, which will inevitably lead to tactical adjustments in tariff policies. However, this approval rating is still significantly higher than during his previous term, making a strategic shift in related policies unlikely in the short term. This has a certain impact on the global economy and China's foreign trade. It is preliminarily estimated that the degree of export adjustment in this round may be close to typical periods when external demand is impacted historically.

3. In the past, responses to external demand shocks have generally adopted a package of counter-cyclical policies. Among them, consumption can play a positive role, but its momentum has more of an endogenous "slow variable" characteristic, while investment's exogenous "fast variable" characteristic is more prominent. Unlike in the past, the intensity of domestic demand in this round also depends on the degree of change in constraints such as domestic debt and real estate.

4. Looking ahead, given that the actual GDP in the first quarter is still acceptable, China's counter-cyclical policies under external demand shocks may not be a rapid process. Additionally, during the "90-day grace period" of the U.S. "reciprocal tariffs," transshipment trade may still provide some compensation for exports in the second quarter, which means that larger doses of hedging policies may need to wait for confirmation of the gap between the cumulative growth rate of actual GDP and the target set at the beginning of the year.

Main Text:

Recently, the fluctuations in U.S. tariff policies seem to reflect the contradictions between internal logic and economic reality. Although Trump's actions remain full of uncertainty, the objective impacts they induce may already be certain. For various countries, whether micro entities or macro policies, they will also respond with certainty.

1. External Demand is Certain

Recently, Trump's approval ratings have dropped rapidly, which will inevitably lead to tactical adjustments in tariff policies. However, this approval rating is still significantly higher than during his previous term, making a strategic shift in related policies unlikely in the short term.

Figure 1. Does public opinion constrain Trump?

Source: RealClear Polling, White House official website, author's calculations

The high tariffs have a certain impact on the global economy and China's foreign trade. In particular, this time the U.S. has focused its efforts more on China, even intending to force other countries to take joint action, such as creating some form of "tariff wall." It is preliminarily estimated that the degree of export adjustment in this round may be close to typical periods when external demand is impacted historically Figure 2. How significant is the adjustment of external demand?

Source: WIND, author's calculation

II. Response, is it also certain?

In the past, responses to external demand shocks typically involved a package of counter-cyclical policies. Among these, consumption can play a positive role, but its momentum has a more endogenous "slow variable" characteristic, while the exogenous "fast variable" characteristic of investment is more pronounced. Unlike in the past, the intensity of domestic demand in this round also depends on the degree of change in constraints such as domestic debt and real estate.

Figure 3. Policy response: rely on consumption or investment?

Source: WIND, author's calculation

Looking ahead, given that the actual GDP in the first quarter is still acceptable, China's counter-cyclical policies in response to external demand shocks may not be a rapid process. Additionally, during the "90-day grace period" of the U.S. "reciprocal tariffs," transshipment trade may still provide some compensation for exports in the second quarter, which suggests that a larger "dose" of hedging policies may need to wait for confirmation of the gap between the cumulative growth rate of actual GDP and the initial target.

Figure 4. Policy response: what is the pace?

Source: WIND, author's calculation

Note: GDP is cumulative year-on-year, and the interest rate is the 7-day reverse repurchase rate.

Author of this article: Wu Ge, Chief Economist of Changjiang Securities, Source: [Wu Ge Economic Notes](https://mp.weixin.qq.com/s?__biz=MzI4NjMyNTUwMw==&mid=2247488356&idx=1&sn=b521b6f7577f74d572937b338303c879&chksm=eaed636710e37cd412bee1cc121ad92ebeda7591ef6954317f834d9d5648ce1f5ad58b0e13ed&mpshare=1&scene=23&srcid=0416shkXizdpgVV5Bo43pdeL&sharer_shareinfo=e4e1f219761f5a23292b1571edbc81b8&sharer_sharei nfo_first=21b07de45ddfdc126b6fe1ebb9d46d13#rd), Original title: "Seeking Economic Certainty"

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk