The standoff between the U.S. and China over trade and tariffs presents enormous risks for the global economy, with implications for combatting climate change, nuclear weapons security, and for the development of international standards for artificial intelligence, speakers said May 6 at the Milken Institute Global Conference 2025 in Beverly Hills, Calif.
“We are tearing apart an international trade regime that served our country and the world very well," Robert Rubin, who served as secretary of the Treasury in the Clinton administration, said during a panel discussion on China’s investment outlook amid a new policy environment.
The panel took place before Washington and Beijing said later in the day that trade discussions will start this weekend, the first confirmed talks after a monthlong standoff on tariffs.
Tensions existed between the two nations well before President Trump’s punishing tariffs of as high as 145% on China, in particular over accusations of China dumping products at artificially low prices, Rubin said.
“But we could have dealt with that in a very specific way instead (of) tearing the system apart. We also had a system of alliances that ... the United States built up following World War II, that have served us extremely well and now we're turning our back on that, and I think that is enormously unwise geopolitically," Rubin added.
Even with a growing class of urban consumers in China, the country remains heavily dependent on exports. That challenge is revealed in the percentage of household spending relative to total GDP, noted moderator Robin Hu, Asia chair of the Milken Institute. In China, it’s 35%, in Japan it’s 53% and in the U.S. it's nearly 70%.
There are efforts underway in China to pave the way for more consumer spending after the ravages of the COVID-19 pandemic and regulatory uncertainty, noted Fred Hu, founder, chair and CEO of Primavera Capital Group, an APAC investor with offices in Hong Kong, Beijing, Shanghai, Singapore and Silicon Valley that has invested in more than 100 portfolio companies.
But more can be done, including improving access to consumer credit and bolstering China’s safety nets such as pension systems, healthcare and unemployment insurance. It’s not that consumers don’t have money, it’s more a matter that consumers don’t have confidence, he said.
“It is a challenge, but it's also vast opportunity for China right now," Primavera's Hu said.
Leaders of the world’s second-largest economy are well aware of the dangers of a tariff fight, he said.
“It’s important to keep in mind just because China has taken an initial defiant stance doesn't mean China has given up diplomacy altogether. I believe China is very open and stands ready to have talks when the conditions are right," Primavera's Hu said.
The stakes are simply too high not to have a resolution for both the U.S. and China, with higher inflation, less consumer spending and supply chain disruptions. Should the standoff continue, political and social pressure will increase, Primavera's Hu said.
“Wait one quarter, two quarters (and) you'll see the costs will escalate much higher than they are today."
Resolving the trade fight will relieve the financial markets, as well as provide certainty for long-term investors in China, Hu said.
"Given that the stakes are so high, I actually think China has a reason to look for the first available window of opportunity to settle the nasty trade dispute," he said.
Bloomberg contributed to this story.
