Where do the ongoing trade wars lead? What is the ultimate endgame on trade? Does it require referencing military wars to know the answer? Will it take years to finish as did World War I and World War II? 

Trade and diplomacy among states have always taken place inside closed doors citing sensitive matters involving them. Rarely, they made it to news cycles to overwhelm the public with the most meaningful yet seemingly boring issues to be addressed by state representatives. 

The general public stays largely unconcerned about which country effected what rate on the import or export of which products against which country. However, they tend to give a lot of attention to grand summits, however inconsequential they are, attended by renowned leaders of various nations. Even after diplomats come out of conferences still bearing deep mistrust or disagreements on the issues being considered, they still have a choice of moderating and maintaining the optics as is the norm. 

Provocation and escalation are rarely practiced as matters tend to soon go out of hand in such scenarios. Moreover, the provoking party stands unaware of the other party’s reaction, strength and ways and means of responding.

Historical Reference

The current trade standoff is reminiscent of the economic turmoil of the 1930s, when the Great Depression appeared after implementation of protectionist policies. Likewise, President Trump’s aggressive tariffs tend to threaten the stability of world markets, inciting fears of being pushed into another recession. The Port of Los Angeles has already reported a sharp decline in container shipments from Asia and there is no stock accumulated before the tariff wars began that would offset the slump.

“The current trade standoff is reminiscent of the economic turmoil of the 1930s, when the Great Depression appeared after implementation of protectionist policies. Likewise, President Trump’s aggressive tariffs tend to threaten the stability of world markets, inciting fears of being pushed into another recession.”

Trump’s protectionist policies, which are here to stay for long after him, reflect the internal economic policies the US adopted following World War I. These times might be remembered as the nadir of modern trade diplomacy as the two largest economies lock horns over retaliatory tariff war, foretelling unprecedented consequences for the globe.

In the face of a prolonged trade war, Xi Jinping will have to do more to keep the Chinese economy buoyant. Any potential shock will be comparable to the financial crisis of 2007 to 2009 that prompted a stimulus package of 4 trillion yuan ($590bn).

US Trade Polices since 2017

The voters in America elected Donald Trump because they saw him as their savior, however, it may start to appear that he could well be the Frankenstein they created in international trade. If the US wants to keep selling American debt to the world, then perhaps one should advise the US president to stop disparaging other nations and at least be cordial to them.

“The voters in America elected Donald Trump because they saw him as their savior, however, it may start to appear that he could well be the Frankenstein they created in international trade.”

Prior to and post-election, Trump may have impressed upon the public that trade wars would do good to the country and were easy to win; however, five months into his term, those convictions are far from coming true. 

What the United States wants on trade or is there any strategy at all is a big unknown. Tariffs are announced and paused, and US President Donald Trump seems to change his stance daily. It appears to put his administration officials on a difficult spot, scrambling to provide meaningful justification for his sudden change of mood or retreat.

Meanwhile, the US target of signing 90 trade deals by July 8 is going to fall short though many agreements will be signed by then. And negotiations will still be underway with many countries who will be expecting another pause to the tariffs during extended periods of dialogue to get better deals. Trump, meanwhile, must show that he is serious to get more deals signed. His tendency to enforce tariffs one moment and pause it on another will only delay agreements he seeks. Still, this does not define his China strategy. What might be the deciding factor is his whims and his mood or state of mind with little to no regard for who deals with relationships and policy on a day-to-day basis. 

Trump’s trade wars against the world have culminated into a protracted deadlock between the US and China. Tariffs on China are intact as the same on other countries have been relaxed or lifted. China seemingly is the primary target behind Trump’s trade wars charade.

Free trade fosters a win-win situation; however, the ongoing US-China trade impasse is likely to result in a lose-lose situation for both. Additionally, it is more likely that China will come out of it less scathed than the US, contrary to popular opinion. 

Strategic Relevance

Will Trump make a deal with China? Or will the trade war engulf the security sector? What actions will he take concerning the security realm and how will China’s respond? These are going to be disconcerting prospects. 

The current US-China affairs resemble a prolonged phase of rivalry for which Beijing had been preparing for over the past decade. Both the US and China are not ready to backdown from their stances despite standing between internal economic hardships and international pride. The escalating trade war is turning into a show of dominance between two strongman leaders – and neither looks willing to back down.

A strategic intent is starting to appear on the US side as the Trump administration’s aggressive tariff policies snowball into widespread disruption. The escalation and subsequent de-escalation of a broad trade war looks like a part of a broader plan to stymie China’s aspirations to surpass the US as the superpower. Although Trump openly calls for correcting course on decades-old trade imbalances, administration officials like Defense Secretary Pete Hegseth and Treasury Secretary Scott Bessent tend to perceive the issue as one of the geopolitical strategies. 

The Trump administration also wants China to do more to stop fentanyl and related chemicals’ trafficking into the US. Trump holds fentanyl responsible for fueling American opioid crisis and blames former President Joe Biden for not upholding an agreement that he signed with China during his first term.

The US cannot show weakness on the issue of Taiwan as such impression will provoke China in the same way as taking an aggressive stance against it. It would not be wise to continue a trade war with Beijing sans a clear and coordinated strategy in place. Such a path forward is bound to be filled with unwarranted risks that could jeopardize the global security aspect as well as trade.

“It would not be wise to continue a trade war with Beijing sans a clear and coordinated strategy in place. Such a path forward is bound to be filled with unwarranted risks that could jeopardize the global security aspect as well as trade.”

US-China Interdependence

US-China Import/Export

Chinese goods exports to US last year amounted to $440 billion, earning it a massive trade surplus of $300 billion. Exports fell by approximately 35% in June compared to the same period the previous year as deflation continues to rattle the domestic market. Considering current stalemate of tariffs, Chinese exports alone could fall by up to 50%, denting about 1% off the country’s GDP. Still, such massive hit would not upend the Chinese economy. China’s official records show that the economy grew close to 5% last year, however, the real statistics may well be lower than recorded. Still, China is unlikely to witness recession despite a sharp drop in goods export to the US.

Official figures suggest that China’s economy is still growing at the rate of 5.4% year-on-year in the first quarter, but ill omens loom over the horizon. The ongoing trade war casts a dark shadow over the Chinese economy that is built on the foundation of manufacturing. 

Beijing might rely on various measures in a bid to fill the hole left in by goods export to the US. One alternative China could adopt is rerouting of Chinese goods to the US from third countries. Some Chinese factories are probably already in the process of printing “Made in Vietnam” labels to ship goods through third countries. The US will certainly keep its guard against this maneuver and enforce its “rules of origin” policy to determine taxation on each shipment. However, it might be a daunting task to differentiate uncountable Chinese goods reaching US customs from different countries and taxing them appropriately. 

To control the damage, China could also sell US treasuries to create chaos in the bond market and thus try to weaken the dollar. However, this move cannot be sustained for more than a few days as China too would lose. Nevertheless, doing so would greatly satisfy the Politburo and serve Trump a reminder about who he is up against. 

China can retaliate against the US by targeting key American agricultural exports, especially soybeans and poultry that mostly rely on Chinese buyers and come from Republican strongholds. China purchases about half of all US soybean exports and about 10% of total American poultry produce. Beijing cancelled import licenses of three major American soybean buyers earlier in March.

Rare-earth Metals

China procures airplanes and agricultural products from the US, and it surely can manage these commodities from elsewhere. But what about the US’ growing need for rare-earth elements? Where will the US look for rare-earth minerals vital to its industrial and military-industrial complexes? China supplies over 72% of the 17 metals called rare earths that are used in every product ranging from glass to ceramics to catalytic converters. That is not all, China is the world’s sole producer of six elements under heavy rare-earth elements, a sub-division of rare earths. Thus, China has the total control over the supply of rare-earth metals. President Xi Jinping may strike the US hard by squeezing their supply. Without these elements, the manufacturing of cars, computer chips, F-35 fighter jets and nuclear-powered submarines remain incomplete. 

“Without these rare-earth elements — such as neodymium, dysprosium, and terbium — the manufacturing of cars, computer chips, F-35 fighter jets, and nuclear-powered submarines remains incomplete.”

For instance, back in 2010, Beijing punished Japan by stopping the trade of rare-earths minerals after the two engaged in maritime dispute over a boat collision in disputed waters. The spat proved heavy to Japan as it struggles to find other supplies of the critical metals to keep factories open. Later, Tokyo took a conciliatory approach and pleaded with Beijing to resume the trade. 

US-China Tech Industry

Another reality check, China’s position and ambition in the artificial intelligence domain is vulnerable. It depends heavily on high-tech US exports, especially advanced semiconductors, which the country of 1.3 billion citizens so far has not been able to manufacture domestically despite being the global manufacturer of almost everything to anything. US giants such as Apple and Tesla, among others, are too heavily dependent on Chinese manufacturing. Trump’s tariffs will certainly eat into the profits of these American tech giants. Trump also seeks wider access for US companies in the Chinese market. Beijing certainly hopes to use this fact as leverage against Trump administration. Moreover, China seems ready to retaliate through tightened regulations against US companies operating inside China. 

Hurting Chinese Consumers and Businesses 

Meanwhile, China faces serious internal challenges, not to mention its massive underemployment and a deflationary loop with no end in sight. The trade war will hurt millions of jobs in China and open the door to risk of political instability. However, China has had rehearsed for this war and is ready to play it beyond trade. 

Meanwhile, who gets caught in the cross hairs of US-China trade war? The answer is innocent Chinese consumers. Chinese consumers will be pinching out their pennies to satisfy Trump’s anti-China war. As China exports to US, Chinese consumers earn and save when they sell, and US consumers spend while they buy. Thus, Trump’s trade war is hurting Chinese families as he attempts to balance the skewed imbalances.

Consumer prices fell for four consecutive months, slumping 0.1%, with food and fuel prices dragging them down. As much as 83% of food and beverage businesses opined that their operating environment was deteriorating, according to a report published by the EU Chamber of Commerce in China. 

Many Chinese consumers are cautious and not making spending decisions. They are holding out looking for discounts, lower prices, or simply holding onto the cash. Until now, there is no change in how things are. A recent survey conducted by McKinsey showed that Chinese households were not inclined to spend more in proportion to what they earn. This is a positive development compared to 2024, when most households said they planned to cut back on spending.

The Chinese government is trying to stimulate spending by introducing a program that enables consumers to buy new appliances by trading in their old appliances which will account for some value. According to Xinhua, this initiative accumulated 175 billion Renminbi (£18bn) in transactions this year, with the sales of new goods going up by 39% in April compared to the year before. However, this rise may not be much in the bigger picture. It might only contribute one or two points to GDP. The firm Capital Economics says that consumption needs to grow by around 4% in China to make up for export losses.

Now, it is Beijing’s move. If China wants to keep its economy afloat through domestic consumption and address trade imbalances with the US, then it ought to make more concrete decision. Otherwise, what Trump might call a “great WIN” could end up as a significant disappointment.

Self-reliance Drive in China

President Xi Jinping’s drive to reinforce China’s self-reliant, fortress-style economy is making it increasingly difficult for Beijing and Washington to sign a lasting trade agreement, in which Trump might want China to boost purchases of American goods.

The trade dispute has also coalesced public opinion in China. Chinese citizens perceive US actions against Chinese firms as bullying or similar to unfair trade practices imposed by the British Empire in the 19th century. In this view, the Chinese population triggered emotionally is also extending support to Beijing’s stance. Danger and opportunity both are contained in word “crisis” in Chinese language. If China can withstand the current standoff with the US, it might come out stronger in the long-term.

Though trade war has disastrous effects on both US and China, economists fear a recession in the US more likely than in China. In any case, the Chinese president may find excuses for his underperformance and could appeal to Chinese citizens to thrive against US bullying. In that way, Xi may smoothly ride out the storm; the same might not be said for Trump. 

Global economy

Any trade deal between the two biggest economies in the world, China and USA, will serve as a breather in an otherwise tense global trade environment. 

What began as a trade dispute has evolved into a war of status and pride, with President Xi willing to play a long game with tactics rooted in Maoist strategy. History shows that fast-growing economies rise only through deep engagement in international trade. Most of the world’s economic successes, post-Industrial Revolution and World War II, came with the expansion of global trade and commerce.

China’s falling demand for imports is affecting nations that previously exported high-value products such as automobiles and industrial equipment to fuel rapid growth. Since late 2022 till May this year, Chinese imports from the US have fallen by 11%, while imports from Japan and Germany dipped by 17% and 18%, respectively. This comes as China is growing increasingly disinterested in imports. Despite soaring exports, imports are not going up in China. This signals that the domestic demand is declining amid Beijing’s focus on developing industrial self-sufficiency.

Similarly, China’s trade with big emerging markets like Brazil and South Africa has progressed at a snail’s pace. This might be attributed to the collapse of China’s real estate market which diverted the focus on commodity consumption.

Today, roughly 70% of global trade is complex intertwined in supply chains that span more than one or two countries for that matter. Any disruptions in these supply chains hinged to US-China trade war will amplify the impact in inconceivable ways. To predict what would happen is nearly impossible until it happens. That is why trade wars are so damaging, they disrupt a key engine of growth and stability. It might earn any country a political score by declaring victory, but the economic reality is tariffs are inflicting severe harm on global businesses and consumers. The economic and diplomatic fallout from trade wars is immense, and situations might adversely deteriorate before they show signs of any improvement. 

“Today, roughly 70% of global trade is complex intertwined in supply chains […] the economic reality is tariffs are inflicting severe harm on global businesses and consumers.”

US-China Calculus

The trade war is turning into a contest to take hits and suffer on the go. Beijing views Trump’s tariffs as counterintuitive measure that ultimately erodes investor’s trust in the greenback and its dominance. Investor confidence in the US economy has already shaken following Trump’s sweeping tariffs against most of the countries, which has affected the value of the dollar.

China’s thinking seems that its citizens can survive the economic hardship for relatively longer period than Americans. However, the underlying problem might be China’s longtime suspicion of US intentions and President Xi’s rigid policymaking approach. As such, doubts and continued apprehensions might encourage hardliners in Washington to take tougher measures and unnerve American allies.

Supporters of Trump argue that his strategy of escalating tensions to force the other parties to sign deals is part of his “the art of the deal.” They dub it as masterstroke of negotiation. Still, hope lives as more realistic and pragmatic minds appear to be gaining influence in the White House though damage might have already been done. Some fear the era of US dollar dominance has crossed its heydays.

The Trump administration seems to be wrong to think that China would cave in at the first chance, underestimating its strategic patience and cultural strength. The anticipated quick deal never came, and now American retailers are warning that many store shelves may soon be empty.

Conclusion 

Under Trump, the United States has reached a critical juncture of global hegemony. He certainly has made the Americans realize that the US’s global and economic supremacy may not last forever if actions are not taken. His understanding of current to medium-term geoeconomics is truly beyond this current impasse. In this light, his aggressive trade policies can be deemed as preparatory work to further US dominance throughout the end of this century and probably stepping into the next one. His focus on growing American wealth has also moved other emerging powers, forcing them to introspect their own positions and truly long-term planning.

The US under Trump is looking ahead to reduce its overall reliance on emerging economies like China for strategic resources like rare-earth metals, among other things. Trump truly understands the real, yet significant threat posed by China to the US standing in the world today and moving into the future. On the other hand, China is quietly yet already on its path of long-term strategy. It is gradually decoupling with the US and diversifying its export supply chains. Focusing on self-sufficiency, it is also focused on developing its capacity in sectors it depends on other countries like the US. A case in point – semiconductors. The Chinese leadership also is aware that its reliance on American technology is hindering its anticipated progress in the future.

In the short term, the trade war will not change the status quo, and countries will continue trade despite humiliation to sustain themselves. However, in the medium to long-term, there are going to be major shifts in geoeconomics and geopolitics. Rest assured, parallel economic blocs with their specific supply chains will emerge and exist in the long run. Globalization will continue to take place but along parallel economic blocs with their own set of rules and standards. Therefore, the world needs to start working out a framework that aims to establish harmonious coexistence among multiple yet equally economic blocs. 

In the meantime, the world should brace for the possibility that this trade war is far from over, with the winner yet to be declared. Will Trump win without hurting the American economy or will Xi be crowned the winner despite some injuries? Who will be the real winner? The true winner perhaps can only be known by turning pages of economics books to be written in the future.