Trump's Trade War: Why China Might Just Win

The world economy is still standing after a week of intense trade tensions. President Donald Trump's extreme tariff threats were toned down, but significant duties remain. There is a 10 percent tax on almost all U. S. imports, a 25 percent tax on steel, aluminum, and cars, and a whopping 145 percent tax on goods from China. Trump's team is trying to present this as a strategic move to counter China's trade practices. However, this plan is likely to backfire. To grasp why, one must understand Trump's true goals. His stated aims—cracking down on unfair trade, eliminating deficits, reindustrializing America, and confronting China—often clash with each other or with his other policies. A more plausible explanation is that Trump wants to accumulate and wield power. Tariffs are his tool of choice because he believes other countries will pay any price for access to the U. S. market. Plus, until Congress stops him, Trump has the power to impose or withdraw tariffs at will. Trump's goal is to assert dominance and force submission. Countries that didn't resist his tariffs got reprieves, while those that did were punished. Most countries now see through the economic justifications given by Trump's advisers. As long as Trump is in charge, the U. S. is seen as unreliable. No sensible leader will join his crusade against China. Another reason Trump's trade war might fail is the bond market. Last week, Trump had to back off from high tariffs due to market reactions. He can't raise tariffs again without causing another market revolt. Global leaders will likely seek quick deals to lower tariffs in exchange for minor concessions. These deals won't include breaking ties with China. China, meanwhile, is well-prepared for a long economic battle. It might seem worse off, losing a major export market and facing diplomatic isolation. But China has been focusing on boosting domestic demand, which has been weak due to tight monetary policy. Xi Jinping is now serious about stimulating this demand. China has also become self-sufficient in many areas thanks to export controls. It can stabilize its economy without a major currency devaluation. The U. S. , on the other hand, faces higher inflation due to its tax on Chinese goods. It relies heavily on Chinese industrial inputs, more so than China relies on U. S. components. Higher input prices are already hurting business investment. China has a demand problem that can be solved with better policies. The U. S. faces a supply shock and possible stagflation, which is much harder to fix. If Trump's goal is to make China submit to U. S. power, he might be in for a surprise. China is ready for a long fight, and the U. S. might struggle to keep up. The outcome could be quite different from what Trump expects.