Summary

The central judgment of the episode: the tariff war’s 3 short-term goals—reducing the trade deficit, collecting tariff revenue to shore up the fiscal position, and isolating China—must be prioritized and may not be achievable in one shot. Li Xiang and 风叔 agree that reducing the deficit comes first, with the reciprocal-tariff formula itself as evidence: the trade deficit divided by total exports to the U.S., divided by 2. But once low-tariff agreements are reached with some allies, the revenue objective becomes moot; adding a demand that they raise tariffs on China would in turn weaken the bargaining leverage available to reduce the deficit.
If China and the U.S. ultimately move toward a deal, China’s almost only expandable bargaining chip is energy. China buys roughly RMB3T of energy a year—$400B-$500B—and is the world’s largest buyer; it could probably increase imports from the U.S. by several tens of billions “without regard to cost.” Scaling agricultural imports from $30B to $100B would be difficult, while room for finished vehicles is limited: even with the full 25% tariff removed, a comparable Ford SUV has a China MSRP of roughly RMB280K, already below the U.S. price of $47K. China’s real cost would not be buying more or less, but buying at a higher price.
The exchange rate should neither be allowed to develop a one-way depreciation consensus nor be used to appreciate the renminbi in exchange for tariff relief. The renminbi jumped from 7.3 to nearly 7.45 before returning to the 7.3-handle within 12 hours, as markets priced in both expectations of stimulus and a modest government-led depreciation buffer. But 风叔 believes neither is certain to materialize: a one-way depreciation consensus would accelerate foreign-capital outflows, and once tariffs reach 104%, “it would be very difficult to absorb them through the exchange rate” in any event. The floor is reasonable stability, or even slight appreciation, against non-U.S. currencies.
In a world where no deal is reached, transshipment trade takes over. Russia remained under sweeping U.S. and European sanctions, yet real GDP still grew by more than 3% a year on average in 2023-24; India became the largest buyer of Russian oil for 2 years and resold it to the EU. China has been unable to eliminate telecom fraud in neighboring countries despite a national campaign, and cannot seal off fentanyl precursors. “You do nothing, slap on a label, and make a lot of money”—transshipment countries will inevitably do it. The result is a redistribution of processing margins along the chain and a smaller total Chinese surplus, but global demand and supply-chain efficiency cannot be eliminated in the short term.
Manufacturing reshoring is a long-term slogan blocked by 3 hurdles: policy durability, complex supply-chain ecosystems, and labor with the right skills, willingness to work, and price. Companies will first “get through the 4 years and see” if they doubt policy continuity. Rebuilding even the dyeing and finishing chain for apparel is difficult—“it’s not just an assembly problem.” TSMC’s factory construction and Fuyao in the film American Factory are ready examples.
Trading observation: the synchronized selloff across all assets—U.S. equities down 20% cumulatively and entering a technical bear market, gold and bitcoin also falling, and Treasuries volatile—is the kind of uncertainty panic seen only in late April 2020. “All in all, it will settle in some form.” 风叔 plans to add to his positions this week: “Consider it a way to take part in this once-in-a-century change and bet on China’s national destiny.”
TikTok appears to be part of a larger deal structure. Reports of a leaders’ meeting, a senator’s China visit, the tariff war, and ByteDance’s statement the next day that no deal had been reached and Chinese regulatory approval was required suggest that “the basic deal framework clearly had not been settled.” The episode’s footnote on Trump’s playbook: “Every time, he first turns a chip that wasn’t his into one of his own—whether it’s the Taiwan Strait issue or tariffs.”

Deep dive

1. Start with positioning: most unrealized gains wiped out, 风叔 doubles down on “betting on China’s national destiny”

Recorded on April 9, the day the 104% tariffs took effect. 风叔 said most of his cumulative gains in the capital markets last year had been wiped out within a week, but he still planned to put more money to work this week—“to take part in this once-in-a-century change and bet on China’s national destiny,” making a small contribution to stabilizing the market.
The macro case for adding risk: markets were showing a pattern seen only in late April 2020—every asset class falling together. U.S. equities had fallen 20% cumulatively into a technical bear market, declining more than China’s indexes, while even gold and bitcoin were falling and Treasuries were volatile. This was “massive panic driven by uncertainty”: nobody knew what would happen, so no asset felt safe. But “all in all, it will settle in some form.”

2. Start with information hygiene: no official line on how 104% is calculated, Vietnam’s terms, or the 20% exemption

The commonly cited calculation for 104% is 20 plus 34 after Trump took office, plus a 50% retaliatory surcharge. But different materials disagree on whether the 50% is included. The U.S. side has only said that China was hit with 104% because it did not remove the corresponding 34%; there is no official explanation of the calculation.
Two widely circulated claims also lack official confirmation. One says the U.S. wants Vietnam to impose 30%-40% tariffs on Chinese-imported raw materials. The other says products with more than 20% of their value attributable to the U.S. may be exempt from tariffs. That rule has existed historically, but it is unclear whether it applies this time. If it does, Apple could easily qualify through its intellectual-property value, meaning “there would be no need to rush large volumes of phones from China to the U.S.” 风叔’s rule: treat these only as prompts for discussion, not as facts.

3. A one-way depreciation consensus is undesirable

Over the past 12 hours, the renminbi jumped from 7.3 to nearly 7.45 before the offshore rate returned to the 7.3-handle. The move priced in 2 expectations: that the government would front-load stimulus, with rate cuts and reserve-requirement reductions widening the effective rate differential if the U.S. did not cut rates and thereby weakening the currency; and that the government would allow a modest depreciation to partially offset tariffs. 风叔 believes neither expectation is certain to materialize. The government will not allow the market to form a one-way depreciation consensus, because that would “stimulate more foreign-capital outflows” and undermine China’s ability to develop an effective market.
Li Xiang relayed the idea that China might accept a large appreciation in exchange for tariff concessions. 风叔 ruled that out directly: the renminbi probably will not appreciate. The floor is roughly “at least reasonable stability” against non-U.S. currencies, with slight appreciation or no depreciation preferable. At a 104% tariff rate, “it should be very difficult in any event to absorb the scale of the tariffs through the exchange rate.”

4. The real map of global consumption: the U.S. accounts for 1/4, China 1/5; “30%” is a fabricated talking point

In dollar terms, the U.S. goods-consumption market is about $7T, roughly 1/4 of the global total. China’s market exceeds RMB43T, or more than $6T, accounting for roughly 1/5. As for the claim that the U.S. represents 30% of global consumption, “I don’t know how that was calculated.”
EU data are difficult to pin down because intra-EU trade and national accounting standards vary. Based on 450M people and more than €700B in online sales, with penetration of 10%-15%, 风叔 estimates a market of roughly $5T-$6T. On a purchasing-power-parity basis, China’s market could be larger still, given inflation in most countries and slightly falling prices for Chinese goods. The exchange rate matters because it anchors China’s status as a country with purchasing power, foreign investors’ attitudes, and the value of renminbi-denominated assets.

5. The 3 tariff goals must be ranked: both speakers put reducing the deficit first

The U.S. exports roughly $2T of goods and more than $1T of services, for total exports of about $3T against a total trade deficit of more than $900B. The goods deficit is $1.2T, offset by a $300B services surplus. The 3 short-term goals are reducing the deficit, collecting tariff revenue to shore up the fiscal position, and isolating China. 风叔’s key point is that negotiations with individual allies require a priority order. Li Xiang puts deficit reduction first, citing the reciprocal-tariff formula itself: trade deficit divided by total exports to the U.S., divided by 2. 风叔 agrees.
The goals can conflict. Once a low-tariff deal is reached with another country, the second goal—tariff revenue—disappears, and tariff collection was already “a drop in the bucket” for fiscal repair. If the U.S. also demands that the country raise tariffs on China, “it will weaken the bargaining leverage available to reduce the trade deficit, because you have blocked me from another large market.”
The worst-case scenario for markets is that the U.S. uses the tariff war to unite other countries and expel China from the global trade network. Li Xiang’s comment: “Then it becomes the third goal—the kind of thing Biden did, not Trump.” 风叔: “That’s exactly right.”

6. Manufacturing reshoring is a long-term slogan: 3 hurdles make a short-term solution impossible

The first hurdle is policy continuity. Factory construction requires enormous investment. If companies lack confidence in policy durability, they may promise to build while asking, “How do we build, how fast do we build, and can it actually be completed?” Their attitude becomes: “Get through the 4 years first and see.” TSMC’s factory construction during Trump’s first term and Fuyao Glass in the documentary American Factory are examples. China itself went through a similar cycle of foreign investors questioning policy continuity in 2020-22.
The second hurdle is supply-chain infrastructure. Even apparel, which appears simple, requires a complex chain once raw materials and environmentally costly dyeing and finishing are included. Machinery and autos are more demanding still—“it’s not just an assembly problem.” The third hurdle is a sufficiently large pool of workers with the right skills, willingness to work, and acceptable wages, before factoring in unions, working hours, benefits, and undocumented immigration—the “more complicated problems.”

7. There are only 2 ways to reduce the deficit, and it is hard for Americans to go from bread back to steamed buns

A trade deficit is simply the gap between purchases and sales. The only solutions are for Americans to buy less or for other countries to buy more from the U.S.; “you won’t find any other solution.” American consumers will not accept lower consumption. Replacing imports with domestic production is constrained by supply chains that cannot be rebuilt quickly—“the odds are very low.”
Israel was the first to negotiate, and its surplus of a few billion dollars makes the promise easier to deliver. It currently needs to buy large quantities of military-aid weapons from the U.S.; America is the world’s largest arms exporter, and Trump specifically proposed a new $1T defense budget for the coming fiscal year, versus $800B the previous year. Vietnam is harder. Its surplus is $120B, and the official U.S. response was that “reciprocal zero tariffs would not reduce Vietnam’s $120B surplus with the U.S.” U.S. officials also accused Vietnam of transshipment, subsidies, and “tariff fraud.” Both speakers’ conclusion: Vietnam can probably only buy services. Buying energy would be disadvantageous because of the distance, and “per-capita GDP probably cannot support importing that many consumer goods.”

8. Breaking down U.S. exports of $2T: energy is the largest line item, then the numbers fall sharply

风叔 was “a little surprised” after checking the data. Crude oil, refined products, and natural gas total more than $300B, over 15% but less than 20% of the $2T total—“huge,” and the reason behind reports that the Trump administration is asking Europe to buy U.S. energy to close the deficit. The second-largest category is finished vehicles and parts, at more than $100B, or 5%, explaining why countries have targeted U.S. autos in retaliation alongside agricultural products. Chip exports are just over $50B globally, or 2%-3%; soybeans account for 1%-2%; blood products and biotechnological equipment about 2%-3%.
Li Xiang asked about chips: if manufacturing is largely outside the U.S., what exactly is being exported? 风叔’s answer: wafer fabrication takes place abroad, then finished chips return to the U.S. for resale, similar to Apple manufacturing phones in China and India, shipping them back to the U.S., and re-exporting them. Chips are “small, light, high-value-added, and expensive,” so tariffs on them matter, but the overall impact is relatively manageable.

9. Oil below $60: shale costs are approaching the danger line as China and the U.S. take opposite energy paths

U.S. oil and gas are expensive because of shale. Excluding environmental costs and counting only extraction and logistics, “it probably needs a cost in the low-$50s just to cover itself.” OPEC announced another production increase last week—“I don’t know whether it was intentional”—and prices fell below $60. “From a profitability perspective, it is becoming somewhat dangerous for U.S. crude.” The global cost ranking starts with Venezuela as the cheapest, followed by Iran, then Russia and the Middle East. The cheapest suppliers are precisely the 2 countries the U.S. particularly hates.
The paths are diverging. Trump has eased restrictions on oil and gas production and announced plans to expand coal mining to supply electricity, while “China is doing everything possible to reduce coal-fired power. Everyone is moving in completely different directions.” An agricultural aside makes the point: over the past 100 years, U.S. crop yields per unit of land have increased 8x, while energy use per unit of land has risen about 41x. “Ultimately, energy is the final question in human development.”

10. China’s negotiating room: energy offers the most scope to expand within a $100B-plus import basket

China runs a surplus of more than $300B with the U.S.—selling more than $500B and buying more than $100B, “and that is after balancing things out.” The import mix surprised 风叔: agricultural products account for roughly $30B, or 1/5; autos and parts about $20B; energy about $20B; and chips in the $10B range. The largest medical categories are surprisingly mass spectrometry and genetic testing—“because we invested in them, so we know.” Illumina is currently under sanctions, while domestic substitution in mass spectrometry is already underway.
China buys roughly RMB3T of energy every year, or $400B-$500B, making it the world’s largest energy buyer. If Washington prioritizes deficit reduction, “increasing purchases by several tens of billions without regard to cost should be possible, and perhaps even somewhat more.” China’s cost is not the additional volume but the higher price—U.S. natural gas is “much more expensive,” mainly because of shipping and extraction costs. Room for finished vehicles is limited: even with the 25% import tariff removed entirely, a comparable Ford SUV has a China MSRP of about RMB280K, below the U.S. price of $47K, so “finished vehicles may not even be competitive.” Biomedicine and agriculture may offer some room, but scaling agricultural imports from $30B to $100B “would not be easy.”

11. TikTok is part of a larger deal; Trump’s method is to manufacture bargaining chips

风叔 linked a series of events and emphasized that this was only speculation: in early March, the Foreign Ministry was asked 2 or 3 times in succession about a possible China-U.S. leaders’ meeting in April; a senator visited China; the trade war began; and the next day ByteDance announced that no deal had been reached for TikTok in the U.S. and that approval from China’s competent authorities was required. “The basic deal framework clearly had not been settled.” The statement also implied that the ByteDance transaction “might be part of a larger deal structure.” The scale of China’s retaliation “unquestionably exceeded my expectations” and differed from the response in 2018.
China’s negotiating priorities are clear: territorial issues come first, followed by major companies and tariffs, potentially including Huawei, chips, and ByteDance. The episode’s line on Trump’s method is worth retaining: “Every time, he first turns something that was never his chip into his own chip. Whether it is the Taiwan Strait issue or tariffs, it was not an established fact to begin with; he turns it into one first … and then uses it over and over again.”

12. A world without a deal: transshipment is unstoppable and processing margins are redistributed

The extreme case is Russia. The U.S. and Europe “acted together and used their full force” to impose economic and financial sanctions, yet real GDP growth after inflation still averaged more than 3% in 2023-24—“at least, that was beyond my expectations.” Military spending surely contributed while squeezing household welfare. Energy-related activity accounts for roughly 50%-60%, and still generated substantial transshipment trade; India has been the largest buyer of Russian oil for 2 years before reselling it to the EU. The same pattern appears elsewhere: even China cannot eliminate telecom fraud in neighboring countries despite mobilizing the entire country, and strict controls cannot stop fentanyl precursors, whose conversion from chemical inputs to drugs produces “nearly a thousandfold” increase. Li Xiang added a positive example: under chip export controls, AI practitioners will tell you that “compute actually isn’t the problem.”
“You do nothing, slap on a label, and make a lot of money”—the incentive is too powerful for transshipment countries to ignore, and “they are certain to do it.” The cost is that the country of origin gives up part of the processing margin, just as Russia has to sell its oil somewhat more cheaply. The eventual structure is a China-centered supply chain, including neighboring countries, serving non-U.S. markets, while other regions that reach tariff agreements process and re-export goods to the U.S. China’s total trade surplus will unquestionably shrink, but global demand is “very difficult to eliminate unless everyone enters war or recession,” and supply-chain efficiency is also difficult to rematch in the short term.
Will third countries raise tariffs on China to please the U.S.? Major countries face “an uncertain U.S. policy and market that could change at any time, versus a second-ranked market that is certain to remain open but that I would have to give up.” In theory, they should not choose the latter. The overall picture most resembles April-October 2020, when supply chains were unable to move at all: after a brief period of violent disruption, the system eventually normalizes, efficiency cannot be fully rebuilt, and margins are partially redistributed along the chain. Conditions should also be less severe than in 2022, “because everyone is facing this extremely high-uncertainty U.S. administration.”

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