China's Economy Can Absorb Tariff Blows, Says China Beige Book COO

US-China Relations and Tariffs

• 🇺🇸 A recent meeting between US executives and Chinese Premier Li was positive but yielded no significant outcomes, despite being framed as potential groundwork for a Trump-Xi summit.
• 📉 The probability of a Trump-Xi summit taking place has significantly faded.
• 🇨🇳 The Chinese economy is currently in a position to absorb the impact of tariffs, with recent flows into Chinese equities providing a confidence boost.

Bargaining Power and US Policy

• ⚖️ Chinese leadership is questioning the US administration's seriousness and commitment to implementing large-scale tariffs.
• 📈 US policymakers should consider that China appears confident and strong when engaging in conversations.
• 🤝 A meeting between President Trump and President Xi would likely only occur on President Xi's terms, especially after observing the outcome of the Zelenskyy-White House meeting.

Trade Diversification and Inflation

• 🌍 China is courting other countries but cannot fully replace the US as a buyer of its goods, despite exporting heavily to developing nations.
• 💰 China will likely continue to subsidize exporters to absorb the blow from potential new tariffs.
• 📈 The idea that tariffs directly cause inflation in the US is a simplistic view; the inflation conversation is more complex.

Broader US-China Strategy

• 🎯 While confronting China and leveling the playing field is important, tariffs are just one tool.
• 🏠 A broader strategy should include domestic investment and securing supply chains.
• ⚠️ Beyond trade, complex issues like IP theft, Taiwan, spy balloons, and fentanyl must also be addressed.