Vol.190 Macro Talk 94 | How to View the New Round of Maneuvering in China-U.S. Tariff Negotiations (Recorded Oct. 17)

Summary

• 李峰峰判断，中美最终仍会达成关税协议，眼下的“掀桌”更像签约前争夺筹码的极限施压。 He compares the situation with the Panmunjom negotiations in The Volunteers: The Battle of Life and Death: the closer talks get, the more both sides apply maximum pressure and fight for advantageous ground. China has prepared for the worst case of no deal or even decoupling, while the United States is pursuing the upper bound of an advantageous deal, giving it more room to compromise.

• 美国想要的并非一个孤立税率，而是同时限制中国的产业规模、科技升级和军事底层能力，并改善本国制造业、就业、财政与收入问题。 Historically, the tools have included forcing the other side to open its market, limiting its product share, and requiring production in the United States. But unlike 2017-2019, China can now say, “I cannot negotiate within your framework,” forcing both sides to find common ground between their respective proposals.

• 关于含量超过0.1%、涉及中国稀土加工的 components 审查，市场起初理解为针对美国；李峰峰当时认为主要也在约束荷兰等联盟国家的借势行为。 李翔 described the approach as a “mirror-countermeasure strategy,” meaning industrial bottlenecks have been brought into the equivalent back-and-forth.

• 若巴以、俄乌和中美关税三大不确定性同时阶段性落定，全球资金将重新配置，中国可能因配置起点偏低而受益。 李峰峰 stressed that “the world has never had this much money”: the more than $10T in base money injected by central banks could approach the scale of global GDP after a 3-4x money multiplier. Those funds had previously concentrated heavily in U.S. assets amid higher rates and geopolitical risk.

• 黄金上涨是央行、全球配置资金和居民赚钱效应三层购买力叠加的结果，而风险在前两层减弱后居民可能接“最后一棒”。 Global central banks bought more than 1,000 tonnes of gold in 2024, a record high. If the three major uncertainties ease, allocation-driven buying may decline, while the positive feedback loop of households reinvesting gains could also reverse.

• 比特币可以部分套用同一轮流动性与不确定性逻辑，但不具备黄金同等级的安全属性。 The program puts gold at roughly $30T and all cryptocurrencies at about $4T. Many people make money from Bitcoin’s price volatility rather than long-term holding, and the share of genuinely liquid capital is relatively limited.

• 两场战争暴露了美国影响力与控制力之间的落差，也映射出全球权力结构正在换挡。 Israel, Russia, Ukraine and even India retain a strong “independent will.” The long-term picture may be one in which the Americas, Asia and Europe each have their own center of gravity, with Asia’s “hub and spokes” having shifted from Japan around 2000 to China around 2019.

• 短期汇率和预测市场都在押注协议达成，长期则指向人民币份额、汇率与资本项目开放的联动。 On the day markets thought the two sides were about to “flip the table,” the renminbi weakened from roughly 7.11-7.12 to 7.14-7.15 before returning to around 7.12. Polymarket odds at the time put the probability of a deal at roughly 90% and priced out a 100% tariff on Nov. 1; the tariff could fall to 25%-30% if the 20% fentanyl-related levy were removed, or approach 40% otherwise.

Deep dive

1. “Flipping the Table” Looks More Like a Pre-Deal Fight for High Ground Than a Breakdown in Talks

• 李翔 starts from a counterintuitive observation: TikTok already has a framework for agreement, the leaders of both countries have spoken and signaled a meeting, and public information had pointed to reasonably constructive talks. Why, then, did the United States suddenly escalate again through shipping restrictions, an entity list and pressure on allies?
• 李峰峰 uses The Volunteers: The Battle of Life and Death to summarize the psychology of negotiations: “When the fighting is finally over and you are preparing to talk,” each side may still apply maximum pressure before every formal session, even taking a hill on the day of negotiations before the other side retakes it that evening.
• The analogy does not equate the trade war with an actual war; it shows that the United States cannot appear, in its official narrative, to have been forced into negotiations. 李峰峰 explicitly said this was his personal speculation. The closer the sides get to putting decisive bargaining chips on paper, the more they need to establish a high point from a position of strength and then exchange those chips for an outcome.

2. The 0.1% Rare-Earth Rule Brings U.S. Allies Into the “Mirror Counterattack”

• The market initially understood China’s review of components containing more than 0.1% Chinese rare-earth processing as a form of extraterritorial enforcement aimed at the United States. 李峰峰 at the time leaned toward the view that it was also aimed at allies such as the Netherlands, constraining countries that might exploit the negotiations to extract their own advantage.
• His reasoning was that while China and the United States negotiate, other countries may exploit the pressure either because they are compelled to do so or because they are “bullying with someone else’s power.” Australia, New Zealand, Canada, and past cases involving EU wine and beef provided the backdrop for that assessment.
• 李翔 summarized the approach with a newly learned phrase: “mirror countermeasure strategy.” The two placed it in a framework where industrial bottlenecks become equivalent bargaining chips.

3. Two Books Put Short-Term Tariffs Back Into the Context of Long-Term Industrial Competition

• 李翔 recommended Great-Power Competition and the Reshaping of the World Order, written by a professor at Tsinghua University. He said the author was probably 鞠建东. Based on 李翔’s assessment, the book’s source material runs through the end of 2023 and it may have been published in 2024. It explains China-U.S. relations through industrial scale, technology, the military and the history of great-power competition, while also presenting the author’s own solutions.
• Michael Porter’s The Competitive Advantage of Nations provides another yardstick. Written in the 1990s and covering industrial changes and policy in 10 countries, the book barely discusses China, which was still weak at the time. But its cases on Japan, South Korea and, to a lesser extent, Singapore help explain China’s industrial position today and the direction of the 15th Five-Year Plan.

4. Once the Three Major Uncertainties Converge, Global Capital Will Re-rank Its Allocations

• Starting from capital’s search for safety and returns, 李峰峰 identifies the most important uncertainties of 2025 as the Israel-Palestine conflict, the Russia-Ukraine war, and China-U.S. tariff negotiations between the world’s largest producer and largest consumer. The last has the biggest impact on the global economy.
• If there are ceasefires between Israel and Palestine and in Russia-Ukraine, and China and the United States reach some form of interim tariff arrangement, the key point is not whether the outcome is perfect but that “uncertainty becomes certainty.” Capital can then reallocate across assets.
• The implication for China is that its starting point in global allocations is relatively low. 李峰峰 stressed that as long as capital stops being maximally concentrated in the United States, any reasonable reallocation could help China. 李翔 said that, personally, he hoped capital would come to China and Hong Kong.

5. Both Ceasefires Fit the Logic of Interest Rebalancing, but Independent Will Remains a Constraint

• On the Israel-Palestine conflict, 李峰峰 believes the United States will definitely help push for a ceasefire. The continuation of the conflict damages its influence in the Middle East and, since June, has widened divisions between the United States and Europe. Even if Washington continues to support Israel, the short- to medium-term balance has already shifted toward a ceasefire being more beneficial than harmful.
• On Russia-Ukraine, the United States has secured potential benefits through Ukraine’s minerals agreement and shifted part of its military aid into European purchases of U.S. weapons—roughly “dumping the problem while taking the benefits.” A ceasefire determines whether those mineral rights can actually be realized.
• For China, a ceasefire could ease European hostility rooted in the perception that China supports Russia, while benefiting China-Russia development and trade and China-Europe freight rail. 李翔 added from China’s perspective that Beijing still wants Russia to lean toward China, while Europe and the United States may prefer Russia to move back toward the West.
• 李翔’s warning is that these arrangements cannot be modeled solely through the U.S. playbook: “Many countries actually retain very strong independent will and the ability to act.” Israel, Russia and Ukraine all have their own objectives; 泽连斯基’s election plans, political position and the conditions set by the various parties could still become the final obstacle.

6. The Current Fault Lines Reflect a Shift From the Old Power Equilibrium to a New One

• The two put the phenomenon of countries being influenced by the United States without being controlled by it into a longer historical context. Decolonization across Asia and Africa after World War I and World War II gave many countries sovereignty and the ability to act. Vacuums, overlaps and fault lines naturally emerge before a new structure stabilizes.
• 李峰峰 further distinguishes between two layers of influence: material interests and values. Vietnam illustrates the difference: Vietnam identified with national independence and anti-colonial values, while France continued to pursue tangible control. The United States both recognized self-determination and was gradually drawn in by its alliance with France and its opposition to communism.
• 李峰峰 cites Henry Kissinger’s analogy that U.S. diplomacy resembles chess, taking “a pawn, a knight, a cannon.” 李翔 adds that China is more like Go. North Korea and Vietnam during the Cold War therefore became concrete pieces in the U.S.-Soviet power structure, rather than questions determined solely by local issues.

7. Gold Was First Bought by Central Banks, Then Lifted by Global Liquidity

• The first layer of purchasing power came from central banks. Global central banks bought more than 1,000 tonnes of gold in 2024, the highest level on record. China was an important buyer but nowhere near 70%-80% of the total. Beyond geopolitical security, 李峰峰 says the dollar and U.S. Treasuries are underlying variables that cannot be ignored.
• Russia is the clearest example: roughly $300B of its overseas assets were frozen, and the interest income was used to support Ukraine. 李峰峰 believes the strategic significance of central-bank gold purchases may exceed their price significance. Central-bank buying in 2025 appears below the same period last year, with high prices possibly one reason, though he stressed that this was only speculation.
• The second layer is the reallocation of enormous liquidity. 李峰峰 estimates that the more than $10T in base money injected by central banks could approach the scale of global GDP after entering the economy through a roughly 3-4x money multiplier. That money had flowed disproportionately into the United States amid higher rates and war; as it seeks safe havens, it will increase purchases of gold and gold-related derivatives.

8. Gold and Bitcoin Can Both Generate Positive Feedback, but Their Exit Mechanisms Differ

• The third layer of purchasing power is households. After making money on gold last year, households may take out their principal first but continue to reinvest the gains, strengthening the cycle once those gains are realized.
• Conversely, if the three major uncertainties settle for a period, allocation-driven capital may stop buying aggressively. Central banks may continue some strategic purchases, but 2025 already appears unlikely to exceed last year. If households become the main source of demand, the market enters a phase of “passing the baton,” or even the “last baton.”
• This is how 李峰峰 interprets warnings from relevant government agencies, financial regulators and exchanges about gold-price risks, though he offered no price target. He also specifically noted that neither he nor his portfolio owns gold-related products; he was only explaining the sequence of purchasing power.
• Bitcoin’s surge can partly be explained through the same framework, but gold is worth roughly $30T versus about $4T for all digital currencies, and many cryptocurrency participants make money from volatility. “Its safe-haven capacity is clearly inferior to gold.” The genuinely liquid portion of its total market value is also relatively limited, and its trading characteristics differ from gold.

9. China Prepared for the Downside of No Deal; the United States Is Still Pursuing the Upside

• 李峰峰 believes an agreement ultimately “will” be reached, while not ruling out delays or further swings. The decisive question is not how much each side says it wants a deal, but “who has prepared for the worst” amid the intense negotiations.
• On decoupling as the worst-case outcome, he and 李翔 both believe China is better prepared. The United States’ original expectation, however, was not a breakdown in talks but a better deal extracted from a position of strength.
• This creates an asymmetry: the United States is pursuing a negotiable upper bound on the deal, while China is defending its lower bound of no agreement. Since the side that wants a deal more has more room to concede, the odds of finding common ground are high—though the conflict will be most intense just before signing.

10. The United States Wants to Cap China’s Upgrading While Repairing Its Own Jobs and Fiscal Position

• 李峰峰 distills the book’s argument as follows: the United States can accept China becoming a great power, but would prefer it to be “a derivative great power of the United States”—filling gaps that the United States cannot cover well, rather than independently advancing its industrial scale, technological capabilities and military foundations.
• On the left, the goal is to constrain China’s economic scale and technological upgrading. On the right, it is to bring manufacturing back, improve basic employment, and repair America’s own fiscal, deficit and income problems. The two sets of objectives together form the “ideal outcome” sought by the United States.
• 李翔’s question is worth preserving: the goal is too abstract to write directly into an agreement, unlike the Korean armistice line, TikTok ownership or a specific tariff rate. 李峰峰’s answer is that entity sanctions, market access, product share, local production and tariff concessions are the mechanisms that put those abstract goals on paper.

11. China-U.S. Talks Have Shifted From a One-Sided Framework to Finding Common Ground Between Two Frameworks

• The ZTE case from 2017-2019 represents the old order. As described on the program, ZTE accepted a penalty equivalent to roughly 80% of 30 years of accumulated profits, worth more than RMB10B, along with personnel supervision and a supply cutoff. It had almost no negotiating leverage and consequently suffered a severe loss for the year.
• In the previous trade war, China also largely negotiated within the framework set by the United States over “how much to buy.” Seven years later, the biggest change is: “I cannot negotiate within your framework. I need my own proposal and framework.”
• The rare-earth review is placed within this framework as an example of China entering negotiations with its own leverage and both sides seeking common ground within their respective boundaries, rather than simply deciding how much of the U.S. terms to accept.

12. What Industrial Sanctions Really Buy Is Technology, Profit and Time

• Great-Power Competition and the Reshaping of the World Order cites cases involving Panasonic, Toshiba, Japanese semiconductor and auto companies, and France’s Alstom. The United States can pressure companies and management teams, force the other side to open its domestic market, and limit its products’ share of the U.S. market.
• Japanese automakers did not lose their global competitiveness as a result. 李翔 believes Toyota, Honda, Nissan, BMW and Mercedes-Benz still outperformed U.S. companies in profitability or market scale, but they were required to manufacture in the United States, thereby serving American employment. Electronics and semiconductors suffered more visible declines in global share and technological position.
• 李翔 adds that companies such as Intel did not simply overtake competitors on the original track; they shifted toward new technological directions. 李峰峰’s summary is that the United States used a window of less than 10 years to restore market share and give its domestic companies “technological capability, profit and time.”
• Applied today, keeping China out of advanced process nodes would give the United States profit, technology and time in the AI-chip market. 李峰峰 says Huawei is, so far, the only company among these historical examples that has not been controlled by the same method.

13. Lithography Machines, Wind Tunnels and Rare Earths Are Small Markets Carrying Large Systems

• All 3 are first and foremost industries with relatively small standalone markets. Lithography machines do not need frequent replacement; a country may need only 1 or 2, perhaps 3, hypersonic wind tunnels; and the commercial scale of rare-earth processing may not by itself support massive R&D spending.
• Yet each integrates the most advanced materials, processes, equipment and control capabilities across industries. Lithography machines require lasers, stages and precursors; wind tunnels require high-power airflow, flow-guidance design and materials able to withstand extreme conditions. These capabilities cannot serve only one application because the industries are too small to sustain all the necessary R&D.
• Rebuilding the full chain from scratch requires more money and more time. Even if China can concentrate resources on major projects, 李峰峰 cited a presentation by 金凯来 2 days earlier to show how difficult the catch-up remains. The United States faces the same problem with rare earths: once it becomes necessary to act, it becomes a matter of life or death.

14. Asia’s “Hub” Has Shifted From Japan to China

• The book uses “hub and spokes” to describe regional economies. Around 2000, Japan was the main hub for Asian countries’ end consumption, intermediate goods, investment and trade. Germany anchored Europe, while the Americas were unquestionably centered on the United States.
• Japan and Germany both hosted U.S. troops, and Japan’s largest two-way arrow also pointed to the United States. The 3 regional hubs therefore ultimately connected back to America, producing not an ordinary multipolar system but a clear U.S.-led unipolar order.
• By 2019, China had become the largest two-way counterpart for almost every Asian country in goods, intermediate products, trade and investment. The book therefore argues that the 3-legged structure had at least apparently become “2-legged” or “2.5-legged.” Considering the current relationship between the United States and Europe, the future may instead look more like a 3-legged structure of the Americas, Asia and Europe.

15. Both the Exchange Rate and Prediction Markets Are Betting on a Deal; Tariffs Are the Main Variable

• 李峰峰 views the renminbi as a more direct window than news headlines. If global capital believed a breakdown in negotiations would severely damage China’s near-term economy, the exchange rate should have staged a rapid depreciation battle rather than fluctuating within a limited range.
• On the day markets thought the sides were about to “flip the table,” the renminbi moved from roughly 7.11-7.12 to 7.14-7.15. It then returned to around 7.12 even as the rhetoric remained aggressive. During the last trade war, the renminbi moved from a market belief that it would not break below 6 to a depreciation past 7, so 李峰峰 sees no reason to assume the central bank would necessarily intervene heavily this time.
• The program said Polymarket’s prediction accuracy for many major short- and medium-term events was reportedly above 90%. At the time, the relevant markets put roughly 90% odds on a China-U.S. deal and also bet that the United States would not impose 100% tariffs on Nov. 1.
• The main disagreement concerned the final tariff rate. If the 20% fentanyl-related tariff were removed entirely and China’s remaining tariff rose slightly, the result could be roughly 25%-30%. If that levy remained, the rate could approach 40%. These were conditional scenarios discussed by the prediction markets and the two speakers, not confirmed quotes.

16. Renminbi Internationalization, Appreciation and Capital-Account Opening Can Ultimately Happen Only in Tandem

• The book’s historical conclusion is that a large economy’s share of global GDP ultimately becomes highly correlated with its currency’s share of international trade settlement. If the United States and China were treated as a single country, the 2 shares would each be roughly 46%-47%. Within the 2 countries individually, however, economic share and currency share are clearly not highly correlated.
• Leading in economic scale does not mean a currency’s international status catches up immediately. After the U.S. economy surpassed Britain’s, the dollar gained partial status after World War I and only matched it more fully after World War II. 李峰峰’s summary is that financial advantages persist longer, financial status changes more slowly, and convergence among the largest countries can take decades.
• The renminbi is increasing its use in trade settlement through “curved-path” measures such as bilateral currency swaps. But if the renminbi cannot be freely exchanged under the capital account, it ultimately cannot fully match China’s economic share. Opening must also occur when the renminbi carries an appreciation expectation; otherwise capital may flow out. Appreciation cannot be fully realized at once either, or capital may leave again after arbitrage.
• The condition is continued Chinese economic growth. The program cited estimates that if China maintains growth of roughly 4.5%-5% while the United States grows around 2%, China’s nominal GDP could catch up with the United States by 2035. By 2060, according to the estimate as relayed on the program, China’s total GDP could be roughly twice America’s and its per-capita GDP roughly 70% of America’s. Under that premise, renminbi appreciation, stronger purchasing power, expanding consumption and Asia’s hub connections would reinforce one another, though it remains uncertain whether the relevant policy milestones will appear in the 15th Five-Year Plan.