HKUST Business Review

Contradictions and Consequences The panel discussion then sought to dissect the motivations and contradictions behind the new US tariffs. Professor Lai provided a sharp analysis, summarizing the four main goals of the policies: “President Trump wants to generate revenue, reduce the trade deficit, bring major manufacturing back to the US, and possibly use tariffs as a threat to negotiate more market opening. However, these aims are not mutually consistent. Some are actually contradictory.” Lai also introduced the concept of the optimum tariff theory, explaining that a large country might gain revenue by imposing tariffs if foreign nations do not retaliate. “But in reality, the retaliations have been swift,” he said. He expressed scepticism about the feasibility of some of the US’s goals. “As for bringing manufacturing back to the US, I very much doubt it,” he said. “Reducing the current account deficit? Maybe, but at the cost of inflation and increased costs to American manufacturing.” Thompson described the current strategy as fundamentally flawed, as it overlooks the overall impact. “Look at the major big-box retailers like Walmart or Target,” he said. “Very few items are made in the US. The new tariff policy fails to account for the broader implications.” He also predicted an eventual consumer backlash. “Anyone who buys under these tariff markups is definitely going to pay a lot more,” he said. “It will take time, but consumers will ask, ‘Why am I paying all this extra money?’” China’s Opportunity While the US tariffs have created challenges, the panelists still saw significant possibilities for China to reshape its economic strategy. “China can turn this crisis into an opportunity,” Lai said. “The nation’s consumption as a percentage of GDP is too low — maybe 50-55%, compared to the US at almost 70%.” By boosting domestic consumption, China could reduce its reliance on exports and build greater resilience against external shocks. He also highlighted China’s broader economic potential. “Measured by purchasing power parity, Chinese GDP is actually 25% larger than that of the US.” Thompson praised the speed of China’s evolution from low-cost manufacturing to high-value exports. “The country has gone from toys and T-shirt to electronics and iPhones. Their exports have become much more sophisticated,” he said. Agreeing with this, Lai further emphasized the fact of resilience in the face of adversity. “China is very good at ‘eating bitterness’,” he said, alluding to the country’s ability to endure and adapt to economic challenges. Hong Kong’s Future Role The discussion also considered Hong Kong’s position in this evolving landscape, highlighting the city’s well-known ability to adapt to changing circumstances and find new ways to prosper. In particular, Thompson emphasized that Hong Kong’s strengths in logistics and finance could help it remain relevant despite the challenges posed by the trade war. Tung echoed this sentiment, pointing to the importance of action and reaction for businesses in every sector. “Build a financial war chest, be efficient, and be adaptable,” he said. “Continue to cultivate relationships abroad and prepare for shrinking demand in traditional markets.” Andy Tung delivers keynote speech at the seminar. Build a financial war chest, be efficient, and be adaptable. Andy Tung Managing Partner of QBN Capital and Non-Executive Director of Orient Overseas (International) HKUST Business Review 36