US needs to 'work closely' with China

Tariffs by the United States on Chinese goods will only raise US consumer costs while straining the global economy, a renowned professor of finance said.

"At the end of the day, the US needs to work with China. There's no doubt in my mind," said Joseph Cherian, CEO, president, dean and distinguished professor of the Asia School of Business.

When the United States imposes tariffs, the impact largely depends on the availability of domestic substitutes, Cherian said in an exclusive interview with China Daily on the sidelines of the signing ceremony of a strategic cooperation agreement between the Asia School of Business and Tsinghua University's PBC School of Finance.

"If the United States does not have many local substitutes, then it still needs to rely on foreign suppliers for those goods, and as a result, the increased costs from tariffs will be passed on to US consumers," he said.

"So, these tariffs are just not a good idea," he added. "They've hit the wallets of ordinary consumers. In my opinion, the US cannot afford not to work closely with China."

He also pointed out that inflation has risen in the United States. "For instance, Walmart has fewer products on their shelves because it relies on sourcing from China."

"The rest of the world and the United States will suffer if the world's two largest economies don't work together. There was a time when China and the United States were close trade partners, and during that period, the world's economy flourished," Cherian said.

US tariffs could also prompt other countries to deepen economic ties among themselves. The worst-case scenario is counter-tariffs on US goods by other countries.

"This is just a bad equilibrium. In economics, we say we've reached 'a sub-optimal state' of the economy, where everyone ends up worse off."

Cherian also predicted a possible rise in bilateral cooperation among central banks to bypass the US dollar, hence reducing transaction costs. "With the rise of digital currencies, it's now much easier to achieve," he added.

While the US dollar will still be dominant in the global financial system, more investors are diversifying into renminbi, yen and euro assets.

Despite external challenges, Cherian expressed strong confidence in China's economy. He said that the Chinese government has demonstrated remarkable capability in maintaining stability in such a massive economy.

"It's much more complex to manage a vast economy, but the Chinese government has done a reasonably good job using fiscal and monetary policies to manage these problems," he said.

According to the National Bureau of Statistics, China's economy remained stable in the first half of the year, with GDP reaching 66.05 trillion yuan ($9.21 trillion), up 5.3 percent year-on-year. Exports by foreign-funded enterprises rose 5.4 percent to 3.49 trillion yuan.

To further smooth economic fluctuations, he said China should continue to open up, attracting more foreign investment and allowing more foreign participation in the economy.

Cherian said he was in favor of long-term foreign investment that is willing to stay and build productivity, rather than speculative "hot money" that flows in and out. He also urged China to upgrade its economy toward higher value-added industries.

He said several Asian nations, including Malaysia, are keen to collaborate with China in areas such as electric vehicles, artificial intelligence and robotics.

"Malaysia is one of China's strongest and most enduring trade and business partners. This will certainly continue."