The fast-worsening trade war between the United States and China – the planet’s premier geopolitical powers, whose economies are intricately entwined – threatens to wreak severe damage on both nations and will send shockwaves worldwide.
Since President Donald Trump launched this potential cataclysm, it’s fair to ask whether he’s got a strategy and how he sees the endgame.
As usual, Trump is improvising. His stunning escalation in tariffs on China this week didn’t follow any meaningful formula. He’s acting, as he always does, like a real estate shark, raising the stakes to intolerable levels to seek leverage. It’s the latest manifestation of the “madman theory,” by which Trump conjures the most extreme of circumstances to try to spook his opponents.
Perhaps it will work and China, not eager to wreck an economy that no longer pumps out eye-popping growth numbers, will rush to the table. Many China experts believe that Beijing doesn’t want to go to the brink any more than Trump does. The potential consequences of a full-on trade war for both sides might leave them with no option but to step back.
But after Trump’s latest raising of the stakes on Thursday when he confirmed tariffs on Chinese goods would now hit 145%, Chinese President Xi Jinping hit back, pushing duties on US goods entering China to 125%. Xi said that China was “not afraid.”
There were also new signs that Trump’s team doesn’t appreciate the factors in Beijing driving China’s calculations. CNN’s Kylie Atwood reported that the administration had privately warned the Chinese not to respond to the US tariffs and that Xi should request a call with Trump, a source familiar with the discussions said. Such a move would have implied that the Chinese president was a supplicant to the US president who started the standoff, an intolerable possibility for Beijing.
The risks are massive.
“We’re now in a huge (trade) war with China, and the tariffs that have been imposed on China are what I would call prohibitive,” former Treasury Secretary Janet Yellen told Zain Asher and Bianna Golodryga on CNN International Thursday. “They’re going to result in massive impacts on the United States and the global economy. No one knows where these policies are headed.”
Trump’s tactics assume that the threat of massive consequences will force China into negotiations – as happened in his first term when the two sides reached a trade agreement that was never fully implemented even before the Covid-19 pandemic effectively shut down US relations with Beijing.
But coercing China could backfire, given its vast economic weight and its sensitivity to slights from Western powers it views as trying to thwart its rise. China’s population is unlikely to respond well to threats after years of nationalistic policymaking and propaganda aimed at superseding the United States.
Trump insisted Thursday that his personal chemistry with Xi would be decisive. “He’s been, in a true sense, he’s been a friend of mine for a long period of time,” he said at a Cabinet meeting.
Trump often reminisces fondly about a visit by Xi to his Mar-a-Lago resort during his first term, when the two munched on “the most beautiful piece of chocolate cake that you’ve ever seen” and he informed his stunned guest about military strikes he’d just ordered in Syria.
Cake diplomacy is unlikely in Trump’s second term.
Chumminess isn’t really Xi’s style. China prefers negotiations to be conducted in grueling lower-level formal diplomacy. Leader meetings are highly scripted – far from the scenario of big guys getting together in a room and thrashing it out that Trump prefers.
“President Xi Jinping … is not a negotiator. His role is not to be engaged in a trade negotiation; instead it’s the working level, the bureaucrats, the functionaries negotiate the deal,” said Zongyuan Zoe Liu, a senior fellow for China Studies at the Council on Foreign Relations. “From that perspective, I do see some short-term logistical challenges, even though the intent to de-escalate may still be there in China.”
There’s also no chance China will expose its leader to a freewheeling Oval Office session when anything can happen. Just ask Ukrainian President Volodymr Zelensky after his dressing-down earlier this year. Or Israeli Prime Minister Benjamin Netanyahu, who was surprised this week when Trump said he might not lift tariffs in a return for the Jewish state eliminating its trade deficit with the US.
But as the global trade war quickly evolved over the past several days, the administration hatched a new idea: use trade agreements with allies to isolate and pressure China. This seems a long shot, however, since the president has alienated nations that he’d need for this, including Canada and those in the European Union. America’s friends have decided the US is an unreliable partner and they’ll have to go their own way.
CNN’s Alayna Treene asked Trump to identify his “endgame with China” on Thursday. The president shook his head when asked if he was waiting for Xi to blink and couldn’t say how he’d resolve the showdown. “Look, for years we’ve been ripped off and taken advantage of by China and others, in all fairness, but … that’s the big one,” Trump said.
This is an astonishingly blasé attitude given the ramifications of a conflict between the world’s largest economies that could have incalculable consequences.
Why a trade war between the US and China could be so damaging
One reason a trade war between the US and China could be so disruptive is that the two economies have become so intertwined.
Years of integration have helped both countries. American consumers have enjoyed cheap access to clothes, shoes, electronics such as iPhones, and other consumer goods, which has raised the middle-class quality of life. China has used US trade to expand manufacturing and to lift tens of millions of its people out of poverty. The profits have been pumped into high-tech industries and China’s growing military.
In the United States, the downside of this arrangement has been that cheap goods from China have hammered US industries, from steelmaking in the Rust Belt to furniture manufacturing in North Carolina. And the longtime rationale behind the US’ China policy – that economic development would inevitably loosen the grip of Beijing’s communist leaders – did not pan out. China hawks in Washington now argue that the US effectively built its 21st century superpower enemy with its own addiction to cheap consumer goods.
Foreign policy analysts used to argue that the enmeshed nature of the China-US relationship would provide a firewall against military conflict. But now the talk is about decoupling, the process of de-integrating the American and Chinese economies – the two powers on either side of the world’s most dangerous geopolitical rivalry.
If trade dies out between the US and China, the consequences will be painful. The price of goods that form a vital part of American life could shoot up. This could fuel inflation, worsening the quality of life for millions and hurting consumer confidence, which in turn could tip the US into a recession.
In China, a prolonged trade war could particularly hurt small businesses, which are the engine of its economy. Unemployment could rise, which is always a concern for a nation obsessed with keeping a lid on unrest. Western observers often forget that while China’s authoritarian system suppresses dissent, it does have its own form of internal politics that its leaders cannot ignore.
This means that a trade war between the US and China could become a grueling test of which populace can take the most economic pain.
America turns to the allies it spurned
The magnitude of the potential conflict has US officials casting around for a strategy.
There is one approach that would leverage American strength and global power and that might have a chance of building pressure on Beijing to act on consistent US complaints about market access, theft of intellectual property, industrial espionage and other issues.
There’s only one problem: It would conflict with Trump’s “America first” mantra.
In an interview with Fox Business on Wednesday, Treasury Secretary Scott Bessent pointed out that US allies such as Japan, South Korea and India would soon be in trade talks with Washington, as would Vietnam. “Everyone is coming to the table, and basically China is surrounded,” he said. Bessent added that a topic of talks should be a joint goal: “How do we get China to rebalance? That is the big win here.”
Kevin Hassett, the head of Trump’s National Economic Council, said Thursday that Trump’s Cabinet meeting would discuss whether the US should make trade deals with allies to create a united anti-China front. America’s power has long been multiplied by its alliance system – a key advantage that China does not enjoy. A common approach between the trading nations of North America and Europe would be hard for Beijing to ignore.
Yet everything that Trump has done since he arrived back in the Oval Office has been designed to destroy this group of like-minded democracies.
Several times this week he dissed the European Union. “The EU has been very tough over the years … I always say it was formed to really do damage to the United States in trade.” In fact, US policy for years – despite many trade disputes – has been to support a strong EU as a American-allied bloc of prosperity, unity and democracy in a continent that was the epicenter of the bloodiest wars in human history.
Fierce anti-Europe sentiment elsewhere in the administration might also be a problem. Vice President JD Vance revealed his distaste for the continent at the Munich Security forum and also in a group chat of officials about air strikes in Yemen.
Trump’s provocations in the Western hemisphere could also frustrate any joint anti-China front.
A unified North American trading powerhouse has long been seen as a potential bulwark against China. But Trump has repeatedly threatened to annex Canada and has targeted Mexico with some of his toughest tariffs.
For months, Canadian politicians like Ontario Premier Doug Ford have been pleading with Trump to link up with Canada to combat China. “We always believe in the Am-Can fortress, working together to make the two strongest nations in the world. That’s what we want to do,” Ford told CNN’s Wolf Blitzer on Thursday.
But after weeks of attacks on Canada’s sovereignty, Trump has made it almost impossible for its leaders to cooperate with the US – especially during the current general election campaign north of the border. New Prime Minister Mark Carney has warned that his country’s traditional relationship with Washington is over.
The idea of building an anti-China cooperative of US-allied powers isn’t new. In fact, Trump has already shut it down once.
On his first day in office in his first term in 2017, Trump withdrew from the Trans-Pacific Partnership, a group of 12 nations including allies like Mexico, Canada, Japan, and Australia, as well as Japan. The president also ended talks with Europe on a Transatlantic Trade and Investment Partnership that would have linked the world’s two largest markets.
It may already be too late to change course.
“The US right now is an incredibly unreliable partner to anyone in the world, and I don’t know how we are going to get back to being reliable,” Jason Furman, who chaired the Council of Economic Advisers in the Obama administration, told Isa Soares on CNN International on Thursday.
(Stephen Collinson – CNN)
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