Media Briefing: Trump's Tariffs and the Future of the Global Economy

BEN CHANG: Good afternoon. I’m Ben Chang, CFR’s vice president of global communications. Welcome to today’s Council on Foreign Relations briefing on trade, tariffs, and the future of the world economy. Thank you for joining us for what I know will be a robust and informative conversation. Just now, many of us saw the president is speaking during a Cabinet meeting at the White House on some of the very issues that we’ll be discussing this afternoon.  

As Charlotte said, a recording will be posted online at the conclusion of this on-the-record discussion.  

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With that, over to my friend and colleague, Heidi Crebo-Rediker, to kick things off. 

HEIDI CREBO-REDIKER: Thank you so much, Ben.  

So, again, welcome. We have an excellent group of experts from across the Council today to look beyond I think the tit-for-tat on tariffs to what the implications are for the future of the global economy, including growth inflation, reconfiguration of supply chains.  

I want to make introductions to Zoe Liu, who is the Greenberg senior fellow for China studies at the Council on Foreign Relations. We have Shannon O’Neil, who is the director of studies, senior vice president, and the Maurice Greenberg chair, Council on Foreign Relations. We have Matt Goodman, who’s the director of the Greenberg Center for Geoeconomic Studies at the Council on Foreign Relations. And also Rebecca Patterson, who is the senior fellow at the Council on Foreign Relations.  

So I think the reason why we wanted to focus on the future of the global economy is because we have obviously seen the ninety-day pause—it’s been very helpful, but we’re left with higher effective tariffs and a whole lot of uncertainty for countries and companies and investors, and a lot of them that are feeling scorched by this administration’s tearing up of the rules-based order and the seeming desire to really want to change and upend the global trading system sort of as we’ve known it post-World War II. 

And I get a little worried when I increasingly hear contemplation of a U.S.-plus-one strategy to diversify manufacturing and supply chains away from the U.S.—definitely invest in the U.S., but also both countries and companies trying to hedge to not be over-reliant if this is the approach that the U.S. is going to be taking moving forward. 

So given that we just saw an increase in tariffs coming from the United States on China, and that’s really where—you know, where we still have the effective blockade on Chinese imports as of today, I think I’d like to start with Zoe and say, you know, we’re in an all-out trade war with China. And China pledged again today to fight to the end. So what does the Chinese government want to do short-term? What will the reaction be domestically to manage the fallout for Chinese exporters? And what do you see as any related spillovers from this trade war to the Chinese economy itself?  

ZOE LIU: Heidi, I wanted to thank you for presiding over this conversation and I also wanted to thank our CFR members and the media—our media friends for joining the conversation today.  

I’d like—I wanted to start by saying that a full-blown trade war is not what the Chinese government or President Xi Jinping desires, and a full-blown trade war with the United States is also not helpful for the Chinese economy both in the short term and in the long term.  

But that being said, of course, it’s not good for the United States as well but I’d defer to my colleague and friends Shannon, Rebecca, and Matt to elaborate more, and I’m going to focus on China. 

Right now—you are right, Heidi, the Chinese government has consistently been talking about they are going to fight back resolutely and, you know, we also see this constrained reaction to the Trump administration’s hike of tariffs.  

But I wanted to first and foremost to point out that in the metrics here in the sense that President Trump made it clear that he is the best negotiator in the world and he is personally involved in not just the hiking the tariffs but also in the negotiations.  

But I think here the political dynamic in China is very different in the sense that President Xi Jinping, or the Chinese president, he is not a negotiator. He does not—his role is not to be engaged in a trading negotiation but instead is the working level, is the bureaucrats, the functionaries, negotiate the—negotiate the deal, and then the role of the president is to come in and then give it a blessing.  

So from that perspective, I do see short-term logistic challenges even enough the intent to deescalate may still bear in China, and I think the hurt for the Chinese economy is going to be more damaging—both more damaging, perhaps, in the short term because in the long term this is going to be President Xi Jinping’s evidence to continue or double down on self-sufficiency and reduce the reliance on foreign technology and foreign market and so on and so forth.  

But in the short term the Chinese export intensity—the economy’s export dependency has increased since the COVID pandemic. So rising tariffs and the blockade against the Chinese export is not going to be conducive for China’s growth in the short term. 

CREBO-REDIKER: In terms of how China might approach its international economic strategy vis-à-vis non-U.S. trading partners do you think that that sort of in the—not only the short but medium term you’re going to see a significant change in strategy or do you think that they are likely to just double down on existing strategy? 

LIU: I think it is both in the sense that the—actually starting from about two or three years ago the Chinese government has already been accelerating the free trading negotiations with other countries like including the Gulf Cooperation Council members and that free trade negotiation—free trade agreement and negotiation has been dragging on for over two decades, and now they want to accelerate the conversation.  

And President Xi Jinping has also been—reportedly planned to go to Vietnam and Southeast Asia as a way to sort of show solidarity with the Southeast Asian economies.  

And on top of that, there is also a shift, not necessarily so much in terms of the international strategy but more on domestic consumption part, the government has made it clear that the first and foremost priorities at least for this year as shown in the government report is to implement retail measures to supported domestic household consumption.  

CREBO-REDIKER: OK. That’s a great place to start.  

I will say that the last—that we have stock markets falling right now. Container shipments, the last time I checked, out of China to the U.S. had pretty much ground to a halt.  

So when we think about supply chains, when we sort of recall what it was like during the COVID shock of having broken supply chains particularly coming out of China, I know Shannon has written a great deal about supply chains over the years and I would love to hear her views on what it actually means when you see the kind of abrupt, you know, shock from shutdown supply chains from the world’s second-largest economy. What does it mean for the U.S.? What does it mean for China? What does it mean for other countries? 

SHANNON O’NEIL: Well, thanks, Heidi, and a pleasure to be here with all of you on these interesting times. 

You know, we did see some frontrunning from a lot of different places over the recent weeks where there was a surge in shipments coming into the main U.S. ports as people were trying to get ahead of whatever tariffs were going to be put in place over—you know, during this week. So some of it is that there’s already been a surplus here. But as you say, you have seen just stopping of ships coming out of—out of China. 

Now, it takes a while to get across the ocean, so you know, four weeks from now, six weeks from now may be when we start seeing this a bit more. Some things already have set sail. But it is going to be a significant shift in terms of what we see on store shelves and the like. 

And you know, just following up on what Zoe said, you know, China’s strategy over the last six to eight years has been to, you know, pull back its importance—or, the U.S. economy’s importance for its exports. So you see—you know, you look back, you know, eight years ago and China was, you know, 20 (percent), almost 25 percent of U.S. imports from any country. They were a big part of it. Today, they’re 13, 14 percent, so they’ve pulled back. But if we see a real stop, which, you know, a hundred-plus percent tariffs would suggest, that will be particularly important in sectors where there still is a big concentration. So that is, you know, lots of electronics, your iPhones and other electronics. That is toys. That is shoes. That is some apparel. There are a number of industries where, you know, you’re going to go to your Walmart, your Target, your Best Buy and you’re not going to—you’re either not going to see products or the products you’re going to see are much, much more expensive than they had been, because it does take time—it takes time just to bring sources from other places, to sort of get those orders and get them on ships or planes to here. But it really takes time in reordering the supply chains to actually source from other places that are not coming out of China or touching on China. 

And the last thing I’ll say here is we still don’t know what tariffs are actually going to be put in place, right? We have a halt on a lot of tariffs for ninety days, but no one really rethinks their supply chains over ninety days. They’re going to wait to see what happens then before they start thinking about where they might put investment, where they might look for new contractors, new suppliers, and sourcing, even in some types of supply chains that are faster to move than others. 

CREBO-REDIKER: So, you know, the halting because of the uncertainty of both investment and where, you know, you could—you could divert to third countries will take time, and I’m glad that you highlighted that. One of the things that was notable was, you know, so where does this leave Canada and Mexico? Because supply chains are, obviously, the most highly integrated in the three-country partnership between the U.S., Mexico, and Canada, but we haven’t seen—we saw Canada and Mexico left out of the—of the serious escalation and retaliatory tariffs. What do you think will happen between the U.S., Canada, and Mexico? And I guess a related question: Will there be potential third-country beneficiaries of what we’re seeing between the U.S. and China right now? As we’ve seen over the past few years, Mexico benefited, Vietnam benefited. What are some of the—what are some of the countries that you might see as beneficiaries? 

O’NEIL: Sure. So what is interesting in the first, you know, set of tariffs, even before they pulled some of these back, is Canada and Mexico were given zero tariffs on USMCA-compliant goods. So USMCA is the free trade agreement between the three countries, and those goods that were coming in under those rules were given zero tariffs. And so that is actually something that no other set of countries around the world got. We have free trade agreements with other countries, but they didn’t get that special treatment on their goods. There were exceptions. So steel and aluminum have tariffs. Cars have tariffs. But otherwise, the goods that came in through that agreement or could come in through that agreement were given zero tariffs. 

So that in many ways, while it is not no tariffs on those countries, it is a relative comparative advantage. And so the nearshoring that’s happened over the last several years—you were talking about sort of coming out of China, moving to Mexico—it gives them an advantage there. Before we had a pause on reciprocal tariffs, it gave them a huge advantage because many of the Southeast Asian neighbors or other, you know, kind of competitors or rivals for that—you know, for that nearshoring or that movement, that diversification from China, like Vietnam and the like, they had very high tariffs. Now those are on pause. But still, Mexico and Canada with zero tariffs, it’s different than a 10 percent tariff or the like. So there is a benefit there, I would say. 

The one question, though—and, I would say, it shows the survival of USMCA, at least for now, because there were questions about whether USMCA would continue. The one uncertainty that remains is USMCA is up for review this year, up until 2026. And I really do think that will be a full-blown renegotiation. So there are issues that the United States cares about with both countries. There’s things like genetically modified corn and energy in Mexico. There are things like dairy and lumber with Canada.  

And there’s this overall question about what do these three countries look like vis-à-vis China. This gets to your question of who can benefit from China. Do you think we’ll see the United States go to their trading partners—Mexico, Canada, but others—and say, you know, if you want to trade with us you need to pull back on China if it becomes sort of—if that escalates more broadly than just the tariffs we’ve seen? And Mexico and Canada will be the first ones that we’ll see. So there I see, you know, yes, Mexico and Canada have gotten a reprieve, and they look fairly attractive in terms of investment, or keeping investment and keeping that going. But there are questions given USMCA. 

And then on the last part I’ll just say, who else might benefit? I mean, in some ways anybody who just has a 10 percent tariff versus 125 percent tariff benefits, though there’s a lot of uncertainty because these reciprocal tariffs have just been delayed, not pulled back fully. But there are sort of aspects here, especially countries that did not get reciprocal tariffs. And let me just point to one, and that is Brazil. So Brazil had sort of two ways it could potentially benefit. One way it could benefit is the tariffs on soy and agricultural products from the United States into China are now insurmountable. And Brazil really is a direct substitute, right? They’re the other biggest soy producer, other agricultural goods. They could replace that in Chinese markets and benefit in terms of the growth of their exports to China.  

The other is Brazil is, for instance, one of the biggest shoemakers in the world in terms of exporting shoes. And while Chinese shoes become, you know, a hundred-plus times more expensive—or, 100 percent more expensive, Brazilian shoes will only be 10 percent more expensive. So there may be some substitution effects that could happen fairly quickly with some of their manufactured goods, given they’re having—they have such a small—relatively small tariff hike compared to China.  

CREBO-REDIKER: So I’m glad that you talked about Brazil, because I think during Trump’s first term the U.S. farmers, actually, saw a real—a real hit to their—to their exports. And Brazil was the beneficiary during the—during Trump’s first term. So I’m expecting that—with the retaliation from China—that that Brazil will be a real beneficiary moving forward. 

Turning to—turning to Asia, but a different part of Asia, I’d like to bring Matt Goodman into the conversation and talk about Japan. Because Japan is—Japan obviously has a near-term concern on the economic front about trying to—trying to actually exit from deflation. But the key sectors of their economy that will be impacted by these tariffs will actually be—will be fairly important. And I think we’ve also seen that the safe haven demand for yen assets have appreciation pressures, actually, on Japan’s exports. So how have the Japanese managed so far to navigate Trump’s tariffs? And what are the implications for sort of getting better or worse treatment for Japanese industry? 

MATTHEW GOODMAN: Yeah. Thanks, Heidi. 

I mean, first of all, I’m in Tokyo today. I think there’s relief, because they’re not going to be subject to the 24 percent reciprocal tariff. But, you know, still, like everywhere, a lot of uncertainty. By the way, I think we should all spare a thought for the editors of the Merriam-Webster’s dictionary, who have to come up with the word of the year. And I’m not sure whether it’s going to be tariffs or uncertainty. Which sort of is kind of core to this point, which is that, you know, there are these threatened and actual tariffs. Japan’s still going to face the 10 percent-plus steel tariffs. And obviously it’s a major steel producer and exporter. Auto tariffs. Autos are kind of existential to Japan. And those face a 25 percent tariff. Plus all the uncertainty around North America, as Shannon was talking about, creates a problem because they’re producing across the USMCA region. 

I’d say, you know, Japan also has broader concerns beyond these economic issues about, you know what this means about the U.S.-Japan alliance. And I think there has been an erosion of trust. I think this is a blow to that relationship. I mean, Japan is fully committed to the alliance and, by the way, stories that they’re going to lean into China, you know, because of this I don’t think is quite right, except as a pure business proposition because they need markets. But I don’t think there’s much risk of that. But I do think it undermines some confidence in the alliance. And so there are a bunch of reasons for anxiety and concern.  

I mean, how they’ll respond—you know, I do not believe Japan will retaliate even if these temporary—if the reciprocal tariffs were put back on. That’s just not their style, and they have a lot of reasons they don’t want to do that. They’ll probably, you know, offer a bunch of things, including purchasing, you know, more agriculture, gas, maybe airplanes and military equipment. I don’t know, maybe they’ll offer to buy a fleet of Suburbans or something for their government auto fleet or something, because honestly GM and Ford and probably not going to sell a bunch of cars in Japan even if Japan does one of the things that was highlighted in the National Trade Estimates Report about Japan, which has been there for years, is about safety standards on cars that are unfair to U.S. exporters. Japan may make some token offer to improve those standards or make them reciprocal with U.S. standards, but I don’t think that’s going to lead to a whole bunch of new sales of cars in Japan. Japan will probably offer to invest more—it’s already the biggest foreign investor in the U.S.—but to invest more in the U.S. 

All of—and then one other area of response I think that’s worth watching is Japan is a member of the G-7—the Group of 7—is I’m sure—well, not I’m sure; I know—(laughs)—was just in conversation with Canada as the host of the G-7 about sort of mutual exchange of views on these tariffs, and I think behind that there’s probably a G-6 conversation or G-7-minus-one conversation going on about new arrangements—you know, whether trade arrangements or other, that can be promoted among the rest of the group, which is, you know, natural, maybe by itself not a problem, but, you know, unusual—(laughs)—in that usually the U.S. would be part of those things. And so we’ll see how that plays out. 

Everything I just said, except that Korea is not a member of the G-7, but—applies really to Korea. I think the same for a sense of both temporary relief but also anxiety; a lot of stake in the auto sector, you know, steel, other things. One other thing that both countries have is shipbuilding capability, and that might be something they try to bring to the table to—because Trump is very interested in rebuilding capacity there. 

So I think, you know, there’s a lot of anxiety—by the way, applies probably even more broadly to other allied countries in Europe and elsewhere, much of—many of the things in the responses that I talked about.  

So I’ll stop there. Yeah. 

CREBO-REDIKER: So South Korea—I’m glad that you flagged that as well because they have already announced they’re going to provide support for their domestic auto manufacturers and that they are also going to be very forward-leaning on investment in the United States, so really taking up President Trump’s offer to invest a lot in the United States to really support manufacturing ambitions here.  

GOODMAN: Yeah. Both of those countries have, obviously, growth challenges, and so, yeah, I should have said that, you know, they’re going to probably do a lot more to try to subsidize their domestic industries to try and, you know, replace some of the lost export opportunities here.  

CREBO-REDIKER: So, I’m going to turn to Rebecca next, but I just want to flag that at the half-hour point we are going to be taking questions from you, so please get them ready. We are ready, willing, and able to answer them, and then—so, Rebecca.  

Rebecca has just published a great piece in the New York Times today, so if I can sort of flag your attention to that. It really—you know, I want to talk to her a little bit about bond markets and get her views from a macro perspective. 

So I always pay a lot of attention to bond markets, but media tends to pay most attention to stock markets. But we did see this spike in both the ten- and thirty-year Treasury, which seemed to be the ultimate pressure point for President Trump to pause these tariffs for ninety days. So, you know, on the back of the selloff we heard former Treasury Secretary Larry Summers warn of a financial crisis. One of the reasons is that unlike stocks, you have—the U.S. Treasury is the anchor for borrowing costs for governments and companies and for U.S. mortgages and households.  

So can you walk us through what happened beginning Friday in the Treasury markets, and explain the importance of some of the large investors that apparently sold off some of the long-term Treasury holdings? And what are the implications, if you could take it one step further, for the dollar? 

REBECCA PATTERSON: Sure. Well, thank you, Heidi, and thank you to everyone who’s joining us today. 

Usually, when you have an environment where investors get cautious—we call it risk-off—you would see a flight to safety, a flight to liquidity, which pushes down Treasury yields. And that’s what made this so striking. Clearly, with the selloff in equity markets, the uncertainty that’s been building over the last several weeks—and we see that in economic data now—you would expect to see that same pattern, with ten-year/thirty-year Treasury yields going down. And so that’s what made this so dramatic in the last few days, seeing those yields rise, the thirty-year yield rising above 5 percent briefly, which was very, very unusual to see that big of a move in those yields in such a short period of time. 

In terms of what’s driving this, we’ll know with a little more time under our belts, once we’re able to get an idea of the actual flows that have been taking place. But I—just having worked in investment banks and hedge funds and asset managers for almost thirty years, I think I can make at least an educated guess. I’d say there’s probably two main things going on right now. 

First, especially in the last few days as the selloff got momentum, we had what some people would call a dash for cash. Investors will sell pretty much everything that’s not locked down just to have liquidity. So even positions that they like to have, like gold in the current environment, they would sell just to build up their cash. And we did see gold sell off for a few days. It’s strengthening again today, I believe. So that’s part of it. 

I think the other part of it, for bonds in particular given the liberation day tariff levels and the breadth of the tariffs, which were much bigger than people expected, there was a fear that this could over time, A, create more inflation, and that could push up bond yields because the Federal Reserve would have to keep short-term interest rates relatively higher than they would otherwise be, and that affects bonds along the curve. So that would be one part of it. 

The other part of it that might have led to some selling of bonds, which lifts the yield, is a fear—and these, again, are fears; we don’t have evidence that this has happened to date—a fear that central banks around the world could react to what’s happening by trying to buy fewer or even sell some of their Treasury positions, and look to diversify. Back to Matt’s point about a G-6 or a G-7-minus-one, to Shannon’s point and everyone’s point about looking at their trade relationships differently, we know that in the last several years central banks around the world have been buying fewer Treasurys, diversifying into other bond markets as well as gold. The World Gold Council, which I think is a very strong industry body tracking this, has shown that central banks have bought over a thousand tons of gold for each of the last three years. And the latest data, for February, shows that China is continuing to add to its gold reserves. 

The problem with less demand for Treasurys right now is that we very, very likely are going to have a lot more supply of Treasurys. And if you have less demand and more supply, usually that means prices fall, and in the case of the bond yields rise. And we are watching the budget negotiations on the Hill here in the United States, and there is a very high likelihood that the outcome is going to result in the U.S. deficit, and therefore bond supply needs, going up quite markedly. 

So I think those were the main things. There are some other things in the weeds, Heidi, I could talk about, but I think that’s probably the best high-level answer. 

In terms of implications, and especially for the dollar, it is also striking that we’re seeing dollar weakness not against every currency, but against a lot of major currencies. Again, I think there’s two things happening here. 

One is that people’s expectations for U.S. growth are being pulled lower over the last few weeks. That means that they expect more Federal Reserve rate cuts. Right now, between three and four twenty-five-basis-point rate cuts are priced in between now and the end of the year. That makes the dollar less attractive from a yield perspective. 

The other piece of it—and again, this is my speculation rather than something that I can prove, yet—is that we’re probably seeing foreign investors who had put a ton of money in U.S. assets over the last fifteen, eighteen years taking some of that money home. And that capital repatriation, if you will—so if I am a European and I wanted U.S. tech stocks, I had to sell euros, buy dollars to do that. Now I’m doing the reverse. I’m selling my tech stock. I’m selling my dollars. I’m bringing back my euros, probably to have European cash or European bonds or domestic stocks. And so that capital flow is also weakening the dollar. 

But again, these moves are big for a very short time. I mean, we’ve seen the Swiss franc rise over 6 percent, the yen almost 4 percent, the euro 3.5 percent just since the end of March, so ten days. For the currency market that is a shockingly big move, and if these things continue I would say what we have to watch for is a Fed reaction, not necessarily cutting interest rates but trying to make sure the financial system plumbing is still working correctly.  

We’ve seen that before. The Fed always wants to make sure that financial markets are working effectively and smoothly because that is essential for the U.S. economy. If they start to think that these moves are disorderly, if financial plumbing is seizing up or getting clogged, it is possible that we could see the Federal Reserve take some action to try to restore proper functioning.  

We saw the same thing happen in 2022 when we saw similar market moves in the U.K. after then Prime Minister Liz Truss announced a budget proposal that the market really, really disliked and they started selling everything and it became disorderly, and the Bank of England had to intervene to stabilize markets.  

I don’t think we’re there yet in the United States. But if the pace of these moves were to continue for a few more days I think that is a rising possibility in terms of a reaction.  

CREBO-REDIKER: So I could—there are a lot of places I wanted to go with you on sort of how much this complicates the Fed’s job because if you are unable to really calculate and project, like, what the incoherent tariff policy will mean for inflation, which is one of its core mandates to manage price stability, and also to, as you mentioned, keep a close eye on financial flows and that the plumbing, quote,/unquote, “is functional.” 

But we have reached that time where we’re going to take some questions. I am reminding participants that this conversation was on the record, that there will be A video and transcript available, but right now I’d love to get some questions and I’m going to turn it to Charlotte, who opened up our conversation today, to see who’s first in line.  

OPERATOR: (Gives queuing instructions.) 

We’ll take our first question from Timothy Nerozzi. 

CREBO-REDIKER: Timothy, over to you.  

Q: Can everyone hear me?  

CREBO-REDIKER: Yeah. 

Q: Oh, perfect. My name is Timothy Nerozzi. I’m the foreign affairs correspondent for the Washington Examiner.  

I think one aspect of this trade war/tariff war that I have been unable to wrap my head around is the Chinese perspective, a sincere not coordinated government line Chinese perspective on it. I was just wondering if any of the experts could attest to whether or not they’ve seen indications of how Chinese, whether business—you know, business types or think tanks have responded to the tariffs and what their long-term strategy is in a theoretical way, whether that’s through, like I said, from the business sector, from think tanks private or public, and what exactly is going on in the strategizing happening with the CCP. 

CREBO-REDIKER: Zoe, do you want to take that?  

LIU: Sure. I think—obviously, I think, Timothy, you asked a classic Chinese question in the sense that we tend to think the Chinese think both policymakers and think tank people will be thinking in the long term. 

In a lot of ways I think President Xi Jinping he’s spent his whole career preparing himself and, perhaps, preparing the Chinese political economic system for exactly this moment. You know, since he took power in 2013 he has been talking a lot about the unseen changes in the international system and he also talked about the need to resist the foreign coercion and never again being bullied by foreigners.  

In a lot of ways he and his generation is very well prepared for exactly this moment. But I’m not sure that the Chinese academics and Chinese think tankers they are willing to speak up in terms of how to deescalate.  

Maybe they have—maybe they have personal views, but in the—but the system in terms of how policy is made is that you sort of try to gauge the wind. You have proposed different kind of solutions, and, ultimately, which kind of proposal is being delivered to the secretary’s office is being determined by where the wind is blowing. And so far, given the—given the lack of working-level negotiations, and given the level of sort of single China out as a target, either to isolate China or to—as a as a way to contain China, viewing from Beijing’s point of view, Beijing is not necessarily going to easily back off. Part of the reason is because there is not a clear top signal from President Xi Jinping, this is OK.  

And then, on the other hand, this is—you read the People’s Daily right after the reciprocal tariffs—People’s Daily put out two articles. The title of which both cited President Xi Jinping’s previous speeches. One is to prepare—one is to continue to promote high-quality opening up, and the other article is to focusing on do your own thing. Meaning, grow the Chinese economy, solve China’s internal economic problems. But then at the same time, focusing on self-reliance. A lot of the current policy changes is not a—is only a tactical shift, but there is no indication showing that there is a long-term strategic change in terms of reducing China’s vulnerability. If anything, a lot of the current development is going to only force them to double down the pursuit of self-reliance. 

CREBO-REDIKER: Great, Zoe. 

Just reminding, if you have questions use the raise-hand function. 

And I’ll turn it over back to Charlotte again for the next question. 

OPERATOR: We’ll take our next question from Chase Winter. 

Q: Hi. I’m Chase Winter with Energy Intelligence.  

Could you comment a little bit on—I mean, this looks like a decoupling. And so how does that sort of impact the oil and gas market on one side, and then also sort of your views on the renewable sector? Presumably—you know, the assumption being there’s a decoupling between the U.S. and China in that field, and then possibly, you know, the Chinese go into third markets and sort of flood those markets. That’s the first part of the question. Second part of the question, if I can, is there an off ramp here? Because there doesn’t really appear to be one. 

CREBO-REDIKER: So, Zoe, do you want to—do you want to talk—sorry, I’m throwing everything your way. Do you want to talk a little bit about what—I guess, what off-ramps might be acceptable to China at this stage in the game? And then I know you’ve also done quite a bit of work on critical minerals and the energy transition, and where China is in this. So I’m happy to have you take this, and then anyone else can chip in as well. 

LIU: Sure. I’ll take a first a stab at it. And I think Shannon and Rebecca and Matt can also comment on the market volatility aspect of supply chains. I might be a contrary—I’ll start with oil market. I might be a contrarian. In a lot of ways, maybe in the oil market in particular, I think in the news we tend to—when the news cycle happens people tend to be focusing on a lot of the volatilities in the oil market, as if the market is changing all the time. But I think if we take a longer-term horizon, the oil market in recent years has been surprisingly resilient in a lot of ways. Had a lot to do with technology and alternatives and renewables.  

But I do think in the short run, depending upon how OPEC—and how OPEC perceive the global demand, if trade tension spill over to a global recession, of course, demand for oil is going to go down, probably the price is not going to be stable. Natural gas probably is slightly different, in the sense that there is no global natural gas market. Natural gas is traded very, very differently. And China has also been spending a lot of political and mind to build a renminbi-based natural gas trading system. So from that perspective, I would see divergence in the natural gas market, especially coming from China, with the goal to sort of strengthening the role of renminbi the pricing and the settlement of a series of energy resources and critical minerals.  

And then in terms of—in terms of the off-ramp, I’m not exactly sure I have a good answer to that. The only thing that I—the only thing that on top of my mind maybe tangentially related to that is a lot of the pressures on the Chinese export in terms—not just in terms of renewables, or EVs, or batteries, but just a whole spectrum of stuff. Part of the reason is because it’s not like—when we talk about Chinese export, it’s not the state-owned enterprises. It’s the small- and medium-sized companies. Those companies contribute to about 60 to 80 percent of Chinese export. And those companies have—oftentimes have the employment of people—under a thousand people, by definition of the National Bureau of Statistics. But oftentimes, the employment—their ability to provide employment at each company level is very limited. So reduced export is going to force consolidation. And we can anticipate rising unemployment if the Chinese government fail to step in. So maybe the pressure at home might force the Chinese government to think of alternative solution.  

CREBO-REDIKER: Certainly in the U.S., just checked WTI, and we’re below $60 a barrel. So that’s below the break even for a lot of the U.S. producers right now. I’m going to turn to Rebecca, because she’s raised her hand about that. So hoping you’ll take it from there.  

PATTERSON: Yeah. Well, just to build on what you were saying, Heidi. One thing that I rely on—Chase, I’m sure you know this given where you work, but for the call in general the Dallas Federal Reserve does a very good quarterly survey of major producers in the region. So I try to keep an eye on that, both for their responses and for the color behind their responses, which they publish. And based on the latest data that they’ve put out, WTI somewhere around $60-65 a barrel is where they are profitable. So if we see WTI prices significantly below that for a period—and what I hear from people I speak to directly on the ground there, that the number might be a little lower, maybe 55 (dollars) a barrel. But at 55 (dollars) a barrel they just shut in wells.  

And so, somewhat ironically, if it curtailed supply—and, obviously, oil is a global market. But if we saw the supply constrained enough in the United States, it could cause some distortions with actual higher prices over a tactical period. And so while President Trump and Secretary Bessent clearly would like oil prices lower to reduce inflation, help households’ purchasing power, I would imagine this is not exactly how they hoped to get it. 

CREBO-REDIKER: Correct. 

Shannon. 

O’NEIL: Let me, Chase, just pick up on the second part of your question, which is sort of renewables and that production. And I do think that, you know, complements or is part of the larger story about the movement of trade and supply chains around the world. And so that is a sector in particular—I mean, the big story of the last year, and I think the couple of years to come, is the surge in Chinese overcapacity in terms of exports being sent out to the world, right? As they have spent, you know, $1.9 trillion in investment in types of industries that will export, and you’ve seen the—sort of the net exports, you know, the surplus be a trillion dollars last year.  

A lot of that is in renewables, right? It is in solar panels, where they make, you know, 60-70 percent each year of the whole global demand. It is in electric vehicle, where you see them ramping up and being the biggest car exporter, and sending out. It is not quite there yet but starting with wind turbines. It is electrolyzers. It is all these sort of elements of the renewable, you know, kind of portfolio and supply chain. And, you know, Zoe, it’s critical minerals and the like as well, which we’re doing work here at CFR on.  

And so I would say there—I mean, this is as you see tariffs go up in the United States. Already there were, you know, tariffs on solar panels. There were already effective, basically, limits on any EVs coming in from China. But those are going to go somewhere. And so this redirection already of Chinese trade to, you know, other emerging markets, to Southeast Asia, to other parts of the world, I think we will see a doubling down on that, particularly with the U.S. tariffs. And renewable type—you know, this whole energy transition-type of products are going to be at the lead of that.  

CREBO-REDIKER: So overcapacity is going to just to spill over into other economies. I think that’s a really important, key message for the next couple of months. We have a lot of questions in the queue. I’m going to go back to Charlotte and ask for the next question.  

OPERATOR: We’ll take our next question from April Wells. 

CREBO-REDIKER: Hi, April. Go ahead. 

Q: Thank you very much to all the panelists. 

I appreciated the mention of the MCA and, in that vein, would love to hear the panelists’ views on the implications of the tariffs, either the 10 percent or potential reciprocal tariffs, for other preferential market access programs, such as the African Growth and Opportunity Act, particularly for countries that are considering either their status under the act with the tariffs in place, or the upcoming potential renewal of the act itself. Thank you very much.  

CREBO-REDIKER: Shannon, can I hand that to you?  

O’NEIL: Sure. What is interesting about what was announced a couple weeks ago is no other free trade agreement got that preference that the USMCA did, and so as countries come to negotiate off that 10 percent tariff—or more, depending on what, you know, may transpire—that will be, especially for those that already have agreements—can we get our agreement put back in place? Can we have, you know, compliant goods for AGOA or others—can we have those compliant goods given zero tariffs or given the treatment they had before? But right now nobody else has that treatment—something to negotiate for, but you don’t start with it.  

CREBO-REDIKER: Good question, April 

Next in line, please? 

OPERATOR: We’ll take our next question from Daniel Bush. 

Q: Hi. Thanks so much. I have one question I think for Shannon, and another one back on China, perhaps for Zoe or anyone else.  

But the timeline you spelled out was interesting, looking at sort of how everyday Americans will be impacted. Can you talk a little bit more about—you mentioned sort of four to six weeks that it takes to start seeing these impacts. Is that expectation that, you know, sort of at that point, that’s when Americans around the country in a very concrete way will begin to feel that pinch on products? Is that going to then essentially extend indefinitely? Is there any evidence that companies are willing to absorb any of this themselves without passing them on to consumers? For you, Shannon. 

And then again, back to China, just—is it the expectation here that there is going to be no deal between China and the United States, you know, in this ninety-day window?  

O’NEIL: Sure, Daniel.  

I’ll start and then turn to you, Zoe. 

So, you know, four to six weeks is what it takes to get a container ship sort of across the ocean. If things are flying in planes, it’s faster, so it can hit more quickly, right, as they’re arriving—you know, an iPhone or a computer, sometimes they transport them by air, not by ship. So I think that’s the difference.  

You know, in terms of the absorption of the tariff, you know, the answer is it depends. I mean, it’s impossible to absorb 125 percent tariff, right? That is not going to happen. And we’ve already seen, you know—and the Chinese government is not happy about, you know, having to absorb it. We’ve seen already conversations with Walmart and they’re like pressuring their Chinese suppliers. So that is just not absorbable. 

What you can do in certain goods is move potentially to other markets, and if other markets have a 10 percent tariff, that potentially is more absorbable. So I think it really depends on various things. 

It’s also—you know, certain supply chains take a long time to move, so if you want to, you know, relocate car parts or car plants, that’s going to take anywhere between two and five years to move. If you have an apparel supply chain, you could actually do that in six months. But you’re not going to begin to move those until you actually know what the tariffs are, because you would hate to move an apparel supply chain out of China, where it’s 125 percent, into Vietnam, and perhaps, you know, in ninety days those tariffs go back up and you’re paying over 40 percent.  

So there’s just a lot of uncertainty. So I think there’s going to be a paralysis for a bit until you sort of see what shakes out, though countries that got either—you know, Mexico or Canada got zero on USMCA compliant goods—or countries that just got a 10 percent universal tariff—you know, those do look somewhat more attractive over the next months, especially for supply chains that are a little bit more fluid and just the capital costs and the investment are a bit easier to move. 

So that’s a very long way of saying, you know, we will start to see some prices pretty quickly. There may also be, you know, the retailer that you’re going to may decide, I’m not going to wait six weeks; I have inventory right now; I brought some in over the last, you know, six weeks—I’m going to begin to increase those prices because what’s coming is going to be a lot more and so I want to increase my prices—you know, if it’s going to be a 10 percent hit, I’ve got to increase it 5 percent, or I might just increase it even more, especially if I think the next rounds coming in from China—or maybe won’t come in at all.  

So I do think there’s a lot of fluidity here, but you could start seeing prices creep up very soon. And for those types of industries or those types of products where they really are concentrated today in China, you’re going to see a jump fairly quickly. 

CREBO-REDIKER: The one thing, in terms of immediate, would have been on Mexico and Canada for fresh food in the grocery store.  

O’NEIL: But we’re not going to see that. 

CREBO-REDIKER: But we’re not going to see that. So I think that was one of those things we were all looking to see if that was actually going to get hit. 

Next question, please. 

OPERATOR: We’ll take our next question from Mark Magnier. 

Q: Hello. Thank you very much. This is Mark Magnier with the South China Morning Post. 

A couple of questions—one, maybe for Rebecca: The Chinese have long bridled with dollar supremacy, and there’s always been this sort of Catch-22 where if they start selling their bonds then the value of their holdings will go down. I was wondering how that whole dynamic might work in the situation we’re in. 

And second of all, maybe from Zoe, maybe you could talk a little bit more about the very different political systems as we go forward, you know, on the one side kind of a more wing it flexible side, especially under Trump, and then the greater emphasis on stability with China and how you see that being a factor in ever trying to find common ground. Thank you.  

CREBO-REDIKER: Excellent. Rebecca? 

PATTERSON: Yeah. So, Mark, thanks for your questions, and I am a fan of the South China Morning Post so great to have you with us.  

In terms of selling bonds, China’s Treasury holdings are so large. The last data as of January just for the treasuries—they own other assets as well—was about 800 billion (dollars). So if the market even thought that China was actively selling bonds you would get such an outsized market reaction that it would probably do more harm to China than good, and China knows that.  

So I think any diversification from China is likely to be what we’ve already seen, which is very gradual. I have seen evidence over the years that China may show up less at an auction and make it clear it was them just to send a little signal, a little flare. Possible we’ll see something like that in the coming weeks, assuming these tariffs stay in place.  

But I think what China—you know, probably the easier and also effective strategy would be to continue to make the renminbi an attractive vehicle. You know, China is already globally dominant in—for their currency in global trade. The renminbi is used more in global trade than the dollar.  

And so they can continue to build on that, and I think having their digital currency, their CBDC—Central Bank Digital Currency—and being at the table shaping those rules of order helps them. They’re quite a bit further along than the United States, although the U.S. has made great strides with things like stablecoin. 

But China can build on what it’s already done in the digital currency space to make it easier and cheaper to transact in the renminbi, continue to build market share there and then continue to show that it’s a reliable partner to other countries. That’s going to help them get relative more dominance on the currency front.  

But to date, again, the Bank of International Settlements does a survey every three years to show which currencies are used the most, the least, how it changes. The dollar, despite all the ups and downs that the United States has had, is still so dominant.  

About 90 percent of all currency transactions have a dollar on one side or the other. Renminbi share has grown quite a lot over the last several years but it’s still a tiny fraction of what the dollar is.  

But I would assume China is going to look to use what’s happening today to its advantage where it can.  

CREBO-REDIKER: Zoe, do you want to take the second part of that?  

LIU: Sure. I think—Mark, good to hear from you.  

I think that your question is kind of related to Daniel’s earlier question with regard to whether there is deals. I do think that China actually has a lot of flexibility as well. You know, we tend to focus a lot on President Trump. You know, he can just, you know, snap his finger and change his mind and nobody’s going to care about it. That’s just his style.  

But, in fact, I would say China also under—has a lot of—has a good track record, in fact, of walking—quickly walking back some of these policies, like, you know, how we stopped—overnight stopped the Cultural Revolution and quickly stopped the sudden exit of COVID would be the latest example.  

And on top of that, the party controls the media so they can always put a positive spin even if, assuming that President Xi Jinping is going to pick up the phone and call President Trump and offer President Trump some way to claim victory. 

They have the capacity to do that. But and the intention as well as knowing the fact that rising tariffs is going to hurt the Chinese export, especially the small and medium sized companies, leading to, you know, other ripple effect on deflation, on unemployment.  

So I would say they don’t want to have a trade war. They want—they have the intention to deescalate. But I think right now, given that the working level conversation has not yet started, you know, like in the United States, the new administration, you know, undersecretaries, assistant secretaries, are still not yet confirmed.  

So I think it probably takes time. Whether this is going to take ninety days or shorter I don’t know. But if—but I do think China has the flexibility. Like, just thinking about the past track record, thinking about how they can put a positive spin through the media, I think they would—they would change course overnight if there is a way. 

CREBO-REDIKER: Thank you so much. 

I just want to add one more thing to Rebecca’s excellent comments on the dollar. Whenever I have interacted with China’s PBOC on the dollar question, you really need to have a credible alternative to the dollar in terms of an investment asset. And so, to the extent that there are no other markets that are as deep and liquid at the U.S. Treasury markets, you really don’t—you don’t have that alternative out there yet. 

Next question, please. 

OPERATOR: We’ll take our next question from Andrea Fiano. 

CREBO-REDIKER: Andrea, you’re on mute. 

Q: Yeah. Sorry, sorry. Andrea Fiano, Global Finance. 

CREBO-REDIKER: (Inaudible.) 

Q: Yes. Andrea Fiano, Global Finance magazine. 

A twofold question. First of all, I wonder to what extent the appetite, particularly of Southeastern Asian countries, Japan first, in the negotiation, their appetite for Treasurys could be an informal part of the discussions. Because, after all, U.S. is exporting debt, and the appetite of these foreign countries for Treasurys is crucial. So my question is, could that be part of it? 

The second part is, with the explanation that Rebecca Patterson gave us about the Treasury market here in the U.S., I wonder what is her explanation to the incredible auction that took place here yesterday, which is—was even more dramatic than what happened in the equity market, from zero appetite to the successful auction after the flop of the previous year? So, beyond the rumors, I’m curious what kind of technical explanation could be there. Thank you. 

PATTERSON: Sure. Sure. Well, I’ll take the easier question first, which is just foreign governments’ appetite for Treasurys beyond China, which we addressed earlier. You know, I would refer you to a piece that’s on CFR.org about the so-called Mar-a-Lago accord. The paper, originally written by the Council of Economic Advisors Chairman Stephen Miran, long paper. I tried to distill it. And one of the proposals he has in there—and that doesn’t mean it’s a policy proposal of the White House, but it has been something discussed in D.C. broadly, not necessarily by the White House—is to ask foreign governments like Japan to switch some of their Treasury holdings into an ultra-long bond, something with a fifty- or a hundred-year maturity with a very low or even zero coupon to help the United States finance itself more cheaply. That is something that has been, again, just discussed as a possibility to negotiate for things like a security umbrella or lower tariffs. I do not know if this is something that is being seriously contemplated currently. But it is interesting—and to your point—Treasurys are part of the conversation in D.C. Treasury Secretary Bessent and President Trump definitely want yields lower, because lower borrowing costs help households and companies do well in the United States. 

In terms of the Treasury auction, yes, I think—I would love to talk to some of my friends on investment bank trading desks, although I have a feeling right now they’re still a little busy, to find out who was actually in that auction. Were there any specific players that came that maybe aren’t normally seen? Because it is interesting how that did versus what the rest of the market was doing during the day. It was striking. I agree with your point. But I don’t have a good answer for you yet, unfortunately. 

CREBO-REDIKER: We’ll have to come back and do another one of these in a couple of weeks. I have a feeling that tariffs, and trade issues, and currency issues, and how all these negotiations play out over the next ninety days are going to be front of mind, really, for everybody. 

And so I’d like to close today with thanking everybody for joining us, especially from CFR—Rebecca, Shannon, Matt, and Zoe—for your—for your excellent answers to all of these questions. I want to thank all of the people who joined the call from our membership as well as the media, and remind everybody this was on the record, that there will be a video and transcript posted on the CFR website. So we invite you to visit the CFR.org site for additional resources, some of the links that were talked about today. I’d like to thank all of you and look forward to, like, regrouping and having this conversation several weeks from now. So thank you so much, everybody. 

(END) 

This is an uncorrected transcript.