While President Trump seesaws between punishing or not punishing Canada and Mexico with tariffs, he has shown no such hesitation when it comes to China. Upon returning to the Oval Office, he doubled the 10% tariff on Chinese exports to the United States. The People’s Republic retaliated with tariffs on a range of US agricultural products, with the latest People’s National Congress in Beijing warning of a “bitter” fight ahead.
That sounds like a script for a trade war, but it may not play out this way.
Chinese tech stocks have rallied sharply in recent days, and Beijing shows little inclination to escalate relentlessly in response. This is because both Washington and Beijing know well that the old bilateral China-US trade relationship is untenable. Under that arrangement, US consumers underwrote China’s industrial might at the expense of America’s domestic manufacturing sector. It was the product of a neoliberal consensus that has proved deeply unpopular with the working-class and lower-middle-class Americans who form the Trumpian GOP’s base.
In short, the old free-trade regime isn’t coming back, and both sides are making plans accordingly. Trump may reduce tariffs on Chinese goods in exchange for stronger action to curb illegal immigration and opioids, or other concessions. Commerce Secretary Howard Lutnick said on 5 March, “I think [Trump’s] going to figure out, ‘you do more, and I’ll meet you in the middle some way’. And we’re probably going to be announcing that tomorrow”. Hong Kong’s tech stock index, which traded flat until just before Tuesday’s close, jumped 10% in the three sessions after Lutnick’s remarks came across the wire.
“There’ll be a little disturbance. But we’re okay with that. It won’t be much”, Trump said of the impact of tariffs in his address to a joint session of Congress. Contrary to the remonstrations of Lawrence Summers and other neoliberal economists, he well may be right.
Here’s a back-of-the-envelope calculation of the impact of tariffs: in December 2024, the American economy imported $250 billion worth of goods, while retailers sold $650 billion in goods. Imports are about 40% of retail sales. If the average tariff is 10%, and half of that 10% is absorbed by exporters to the United States, the resulting impact on the price level for imports goods would be 5%. In turn, 5% of the 40% import share in retail sales is 2%. Goods comprise roughly half of the Consumer Price Index, so the impact on overall inflation would be around 1%. (Of course, a great deal of imports are production inputs, rather than finished goods, but let’s assume that the cost is simply passed on to final consumers.)
That would be the “little disturbance” the President has mentioned. An average 10% tariff on $3 trillion a year of imports would yield about $300 billion in revenues, enough to put a meaningful dent into America’s $1.8 trillion budget deficit. This is the benign scenario.
There may be some collateral damage, in particular to business investment. The United States now imports more capital goods than it produces at home, and investment in equipment fell sharply at the end of 2024. Higher prices for capital goods due to tariffs might suppress investment and, perversely, make the US more dependent on imported goods. The administration will do its best to strike a balance between structural change and short-term economic sensitivities.
Because so much of US manufacturing depends on foreign inputs, it will be hard for domestic manufacturers to replace imports with local production. If Trump ramps up the tariff to 25%, it would produce more than a little disturbance — perhaps a 5% increase in the average price of goods sold in the US — but a 10% rate is manageable. And there’s another factor working in Trump’s favour: foreign businesses may invest in the United States to avoid tariffs. Trump claimed in his speech to Congress that $1.7 trillion in foreign investment was already in the pipeline. That may be an optimistic estimate, but more foreign investment is a net positive for the US.
Still, there is reason to be anxious, and the White House will watch the impact of tariffs on the economy closely. Treasury Secretary Scott Bessent, a key member of the President’s inner circle, warned 25 February that the US had entered a “private-sector recession”. He added: “The previous administration’s over-reliance on excessive government spending and overbearing regulation left us with an economy that may have exhibited some reasonable metrics but ultimately was brittle underneath”.
Private investment began contracting in the last quarter of 2024. There are warning signs of economic weakness: the highest unemployment claims in two years and low employment growth in a private ADP survey; sagging consumer confidence according to University of Michigan and Conference Board surveys; and a sharp 0.9% fall in January retail sales.
Which brings us to China’s perspective. Chinese policy makers were initially hoping for a return to the 2020 “Phase One” deal, in which the Middle Kingdom agreed to buy an additional $200 billion worth of US products (though it fell short of that commitment during the Covid recession). Peking University’s Professor Yao Yang, a prominent Chinese commentator, told the Chinese news outlet Guancha: “We can also consider buying American oil and gas, especially natural gas. Our energy procurement also needs to be diversified, and we can import more agricultural products”.
But turning the clock back to 2020 now seems improbable. Beijing reads the same numbers as Trump and his team, and Chinese officials know that Washington can’t continue to run a $1.2 trillion trade deficit forever. As of 2024, the United States had a net international investment position of negative $24 trillion. That’s the amount of assets the United States had to sell to finance the last 30 years of trade deficits. What can’t go on forever, won’t. Aware of US vulnerability on this count, Chinese officialdom has now set aside its “Phase One” hopes.
And China is prepared. The first Trump administration was a wake-up call for Beijing, and it spent the past eight years reimagining its place in the global economy. As a result, the world trade landscape has shifted dramatically: it isn’t so much that the United States has decoupled from China, as much as China that has decoupled from the United States. China’s exports to the America have shrunk, while its exports to the Global South have doubled; it now sells more to the Global South than to all developed markets combined. And it sourced 53% of last year’s soybean imports from Brazil, compared to 38% from the United States.
To be sure, China’s economic exposure to the US market — and America’s dependence on China for a wide range of products — is bigger than the bilateral trade data show. It’s true that US imports from China have fallen to less than $40 billion a month, down from a 2022 peak of more than $50 billion a month. However, US imports from the rest of the Global South have risen sharply. Crucially, much of US imports from Latin America and Asia are assembled in third countries using Chinese components, or come out of Chinese-owned factories.
For example, Vietnam — which is not subject to tariffs under the Trump regime — exports a quarter of its GDP to the United States, and imports the capital goods and production inputs to do this. There has been talk about imposing tariffs on Chinese content in imports from third countries, but that is impractical.
Bottom line: it simply isn’t in China’s interest to rock the boat. Beijing’s retaliatory tariffs on US agricultural products will shift China’s imports away from the United States and towards Brazil, which already provides China with more than half of its soybean imports. It will continue to shift manufacturing capacity to countries not subject to US tariffs, and its indirect exports to the US will compensate to some extent for the continuing decline of its direct exports.
While Uncle Sam and the Dragon look poised for a trade fight, their earlier decoupling, combined with the shifts in the global trade landscape, will likely avert the worst.
Correction: An earlier version of this article incorrectly referred to the size of Chinese imports to the US in millions, rather than billions.
David P. Goldman is deputy editor of Asia Times and a fellow of the Claremont Institute’s Center for the American Way of Life.
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Subscribe“There has been talk about imposing tariffs on Chinese content in imports from third countries, but that is impractical.”
Except that is what must be done.
No Chinese goods entering by the back door.
Americans would be served by less living beyond their collective means. Their standard of living has been too dependent on borrowed money, resulting in a national debt of $30 trillion. Although retaliatory tariffs from China, Canada, Mexico, and the EU may hurt American export business, it might also force a bit of austerity on U.S. consumers whose profligate spending is also not perpetually sustainable.
Interesting article. I’d be interested in views on what impact tariffs would have on the dollar exchange rate. If the US can manufacture a weak dollar then that will offset most of the drawbacks identified in the article. Indeed Scott Bessants’ Chair of econonomic advisors is pushing for this. I’m not clear how they can do it though.
Why are American businesses currently willing to invest in China or China-adjacent regions at the expense of American workers? Why doesn’t Trump directly negotiate with businesses to create deals that benefit both the U.S. and these companies, instead of aggravating foreign nations? It seems counterproductive to escalate tensions when American billionaires are the ones ignoring U.S. interests. I understand it’s about money, but ultimately, the U.S. controls the businesses affected by tariffs. Is Trump avoiding the real barriers to his agenda?
There are two possible answers. I don’t know which is correct. The first possibility is that Trump isn’t nearly the supporter of the working class he claims to be and doesn’t really want to confront the billionaires at all and is more interested in using economic blackmail to obtain political objectives like the Chinese have been doing for quite a while now. The second possibility is that Trump and/or his advisors have deemed that a direct approach such as you’ve described would risk serious consequences. Forcing economic patterns that have developed over decades to shift very quickly is possible, but costly, and would likely lead to short term shock and might cause a severe recession or even a complete collapse such as we haven’t seen since 1929. We have an ostensibly free market and while the government CAN control business in the manner you suggest, the policies necessary to do so would have consequences both immediate and far reaching.
For example, preventing billionaires from simply moving their money overseas would mean shutting down international financial transaction systems. The US technically can do this. They did it to Russians when that country invaded Ukraine. One of the reasons China and Russia don’t like the US is because it does control that system and can use it in this manner. Our allies like to think we wouldn’t use it on them or their citizens, but that’s just because they haven’t imagined a big enough crisis. Given a sufficiently radical President elected in response to a significant crisis with an FDR-like mandate to intervene directly, things like this could be on the table, but it would be like putting the whole world under the same sanctions we put Russia on, and it would break the global economy almost immediately. It would be like pressing the economic doomsday button and destroying everything.
There is some evidence to both theories. Trump’s language and his early actions with regards to tariffs suggest he is using economic leverage for political gains in specific situations, but he has yet to follow through on many of these threats. The threats may or may not serve any purpose but to gauge responses and signal that the status quo must change in some fashion. The better evidence comes not from words, but from actions, and the actions taken by plutocrats over the past decade consistently show them opposed to Trump, almost to a man. Judging by how much of Trump’s current constellation of advisors was assembled prior to the election and then observing who supported which candidate, I’d say the second possibility is more likely in light of the evidence. Outside of some defectors like Musk and others in the tech fields, the corporations and billionaires lined up mostly behind Harris as they lined up behind Clinton in 2016 and Biden in 2020. That suggests that regardless of appearances and rhetoric, the plutocrats feel threatened by or strongly oppose parts of Trump’s agenda, and I highly doubt they really feel that strongly about keeping biological men in women’s sports or DEI initiatives.
Thus, based on the evidence of actions, not words, I suspect that the second hypothesis is likelier to be correct. He and his advisors are attempting to reverse trends that go back decades. He can’t really recreate the economic conditions that had the US as a manufacturing powerhouse decades ago, but he can try to stop the bleeding and establish new guardrails that reverse the trends. Just getting the trend line going the other direction is a significant achievement, and tariffs are a starting point for that. The ones he isn’t using to alter trade patterns will end up being negotiated away and the ones that are truly about trade imbalances and/or genuine economic and political conflicts such as those with China, will stay until the patterns do change.
Part of me would like someone like Bernie Sanders to come in and do about what you say, that is essentially lining up the global oligarchs against a wall and assembling a veritable firing squad of policies that force them to pay out of their own pockets for what they have collectively done to empower the rise of a hostile superpower rival and weaken the nation for the sake of their own corporate coffers. A lot of people deserve to pay for that, and that’s why a lot of Americans are angry. However, doing it too directly and too immediately would undoubtedly create a lot of collateral damage in the form of the usual economic problems like recessions, bankruptcies, bank failures, that would fall hardest on the working class no matter how generous the government was. So, smarter people than you and I have to play economic tiddlywinks to tilt the board until the oligarchs financial incentives align with the American people, at least enough to begin to reverse the increasingly toxic combination of political and economic trends that are frankly setting the USA up for a much worse reckoning somewhere down the road. Then, the oligarchs do pay, a little bit at a time, over years and decades as they can no longer exploit global trade patterns to the same extent. Corporate profits and oligarch fortunes plateau while wages rise. That’s the goal, anyway.
Will it work? I have no idea. We’re on step one of God knows how many and there’s every chance of it falling apart somewhere along the line. I don’t know that Trump has the people’s interests at heart, but I don’t know that he doesn’t. I am pretty sure based on decades of neoliberal globalist policy that the neoliberals have their own plan that only makes sense and can only work on a global level and thus never will actually work. Rather, more neoliberal globalist policy was going to cause a serious crisis in the next decade or two. If crises can be scored 1-10, Trump is about a 3 on the economic and a 5 or maybe a 6 on the political. I sincerely believe we’d have had a 10 of 10 on both scales at the same time somewhere down the road had things been allowed to continue unchanged. I’m willing to give Trump and his plan a chance and see how things are going a few years from now. There may yet come a time when the more direct approach of browbeating the billionaires with the big stick becomes necessary, but we’ll all be better off it doesn’t come to that.
Well written, Steve. I suggest breaking it up into smaller paragraphs, however.
That was an absolutely amazing response to my off-the-cuff comment, and I really appreciate the time you took to explain it. I completely agree with you, and you understood exactly where I was coming from.
However, I want to add something—what you described, all the possibilities you outlined, might have been the reality 30 or 40 years ago, before the internet. Back then, by the time the average person, like a cashier, found out about a major decision, a new president might already have been in office. But today, things are different. Every time Trump tweets about tariffs, not only does the president of China see it immediately, but so does the cashier at the same time. The speed of information has changed significantly.
I understand that Trump has to cater to billionaires, and maybe he doesn’t truly care about ordinary people. But I would argue that even if he doesn’t care about the people, Trump is fundamentally a television personality. He values popularity—not because it necessarily benefits the average person, but because it matters to him. Right now, he’s caught between two forces:
1. The potential to become the most popular president, with people rallying behind his policies, even if they lead to extreme austerity at some point but change the trajectory of the country—and yes, maybe shifting from a free market to something new!
2. Maintaining the support of billionaires, who are his peers and financial backers.
To me, it seems like Trump would lean toward popularity over billionaire approval. After all, billionaires are few in number, and as you mentioned, they probably don’t have deep loyalty to him anyway.
This is why I asked my original question: If you were a policy advisor, wouldn’t you wonder how long he can keep this balancing act going? How long before the public catches on—or even before the billionaires realize they’re being strung along? Every time he imposes a tariff, some billionaire has to adjust their business model, sometimes even moving a supply line to a new country.
What’s also interesting is Trump’s relationship with Putin. In 2007, Putin famously gathered all the Russian oligarchs in a meeting (there’s a fascinating article on this if you want to look it up). They all arrived in their bulletproof Hummers, and he told them plainly: I am the boss. You keep your yachts, your cars, your girlfriends, your millions—but I decide what you do. Some of them later disappeared, but he made it clear that he was in control. I wonder if Trump is planning the same thing, which, as you noted, would probably be catastrophic!
Regardless, as you say, his actions suggest he is willing to take a similar approach. And here’s why: If Trump were only thinking strategically, as you suggested, why would he go out of his way to antagonize Europe, Canada, and Mexico? This kind of provocation isn’t just about trade; it sends a signal to billionaires: If I can do this to entire countries, I can do worse to you. It’s almost like a gangster-style approach to governance.
I’m looking at this with an open mind, but I think time is not on Trump’s side. Unlike past leaders who operated behind closed doors, Trump broadcasts everything instantly. There’s no secrecy, no careful maneuvering—he tells us his plans in real time. And because we see everything in real time, it’s only a matter of time before people, or even the billionaires, start pushing back. Sure this can all be posturing and political pageantry but I also think it is not in all cases.
And as you mentioned, I think dealing with billionaires is a risk, but they also have a stake in preventing an unstable U.S. I think no real billionaire will also want financial disaster today or tomorrow. I think there is a way for Trump to twist their arms—forcing them to lose a few billion in profit to rebuild the country ASAP under his watch or else. And there’s nowhere to run.
If I was Trump advisor, I would say that sacrificing a few billion dollars to spark a cultural renaissance—where bridges, roads, housing, and manufacturing are suddenly being built—is entirely possible. It doesn’t have to be about producing the most advanced semiconductor today; rather, it’s about revitalizing the foundation of society. But for that to happen, both the leader of the free world and the billionaires must be willing to make sacrifices. Also by doing this as I suggested would start a whole new levels of labour and industry – now is the issue this or that there are no skilled workers? I think all these over educated class can actually learn how to do it?
Would that challenge the idea of a free market? Yes, because Trump is actively directing where billionaires should invest and urging them to accept some level of “loss.” But in reality, it’s not truly a loss—they’re simply reinvesting in and rebuilding their own country.
The reality is that there has never been a truly free market if it can be changed politically. It’s not a natural state of affairs—it’s a system created by men who didn’t think about the future of their own people. So, the free market idea can always be challenged—even by Trump!
An excellent response. From what analysis I’ve read on Trump’s economic advisors, particularly Scott Bessent, I strongly suspect he is indeed trying to thread the needle between billionaire interests and the people. Whether he will be able to is the question. I think putting everything in public is a part of his strategy and I think I understand why he does it. Rather than take a direct approach like Putin or some kind of mob boss, which in today’s media world wouldn’t stay secret for long, he acts more like an internet troll, deliberately saying crazy, over the top things to provoke reactions. The reactions are the point. We only see the public reactions. There’s no telling which donors or which global aristocrats are directing angry phone calls to the white house or demanding explanations. He does this to gather information and force his enemies to show themselves, like a hunter flushing quail out of their nest. A more competent ruling class would see this tactic for what it is and behave more intelligently than quail, but we do not have a competent, intelligent, ruling class. We have an internationalized clique of sheltered, sequestered adult children, lesser sons of greater fathers who inherited their fortunes and power and can be easily manipulated by any halfway decent manipulator. They’re incompetent enough that I myself could do much of what Trump does if I had the money or the motivation. It’s telling that Musk, Bezos, Zuckerberg, and other millionaires who have made their own fortunes are a lot more willing to play ball with Trump than the Bloombergs, Cheneys, Bushes, Koches, Soroses, etc.
The corollary to that is that we don’t actually know Trump’s plans, despite the Internet and the multiplication of sources. Trump understands the Internet and the modern media market better than his opponents. He knows that the media outlets, in addition to putting the information out there, also spin that information for their particularly readership/viewership/subscribers. He understands, and has contributed to, what’s pejoratively called the post-truth media, where everything down to the basic facts is subjective. He knows that the various media sources will go beyond what he says and interpret it in some way that suits their political angle. There will be different spins from conservative and liberal media sources and even within each constellation there will be subtle differences based on different subscriber bases, ownership groups, and such. Trump says something knowing that the media will go beyond his actual words and ‘guess’ at his intent to get clicks and views. He now has a history of backtracking, self-contradiction, and making threats that he never backs up, and he uses that to his advantage, forcing the media, foreign leaders, and everybody else to guess which of his threats are genuine, which are just to rile up his base, which are negotiating tactics, and what plan, if any, drives all of it.
I agree as well about Trump’s psychology. He’s clearly an egotist and a narcissist, and as you point out, that’s not entirely a bad trait, because what he cares about is popularity and adoration. He wants people to like him, therefore he is likely to do things that people like, even if his advisors or experts are against it, Trump might listen to the people. The conflicts between Trump and his advisors from his first term could be interpreted as a conflict between bureaucrats who were used to everybody in Washington ignoring the public’s stated concerns and wishes in favor of their own ‘expertise’. Thus, they conflicted with a President who actually cares about the people’s opinion and wanted to do things based on what the people wanted. It’s an example of how a personality trait that’s undesirable in general, like narcissism, can be useful in certain situations. In most cases, we wouldn’t want a narcissist who plays to the mob in office, but in this particular circumstance, where a global aristocracy has acquired far too much power and become far too cavalier in pursuing their own policies without regard to democratic rule, it proves useful as Trump is more psychologically resistant to the appeals of billionaires, bureaucrats, experts, and oligarchs, as the thing that drives him, popularity, is not something they can give no matter how much money, power, education, or influence they may have.
Ultimately, I feel if it comes down to a choice between people and billionaires, Trump will choose the people, whatever seems popular at the time anyway. That ultimately will depend on whether and what crises he encounters in his second term. I suspect the billionaires will want to avoid a full-blown economic crisis during Trump’s second term out of fear of what he might do, given they don’t have much control over him. He might take their side, or he might not, and these are people who are used to getting their way all the time and facing no real consequences for their failures. The prospect of real consequences probably frightens them, as well it should. They’ll likely go out of their way to prevent a crisis that could prompt Trump to get more extreme than he already is. Trump and/or his advisors may in fact already realize this and it may indeed be part of the strategy where Trump puts out these controversial statements and threats about what he might do. The administration wants the billionaires nervous and afraid so they’ll be more hesitant to continue with business as usual. If they adjust their behavior based on what Trump ‘might’ do, then the administration doesn’t have to do anything but play to the mob and make certain the billionaires keep a sufficient fear of the angry mob in mind when they make their ‘business’ decisions. ‘
There’s some history of this working. After the Roman Republic collapsed, Julius Caesar took over and implemented popular reforms that ultimately led to his nephew and successor consolidating a system that was essentially popular dictatorship. It was never formalized as such, and the old Senate and other such things never went away, but the Emperors enjoyed almost complete authority because they played to the mob of Rome and fear of said mob kept the wealthy and powerful in line. Psychologically and societally speaking, a powerful monarch backed by popular opinion dictating the limitations to fearful aristocrats works. It can produce a more or less stable political society over a span of centuries, and thus must be considered as effective if not desirable. This is, I suspect, what the world, especially the US, is moving towards. The essential failure of neoliberal capitalism is that it’s difficult to prevent it from devolving into some sort of extreme oligarchy. The several crises it has endured have all revolved around class struggle that results from too much power accumulating in too few hands, and the present crisis is no exception. Many authors on Unherd have written about ‘Caesarism’ as a possible remedy for the problems of neoliberal globalism and I suspect they have something. With modern means of communication and modern elections systems, this could actually be made to work far more formally and more effectively in modern times. With term limits and fair elections, the people could elect their Caesar and that person’s ability to wield popular sentiment as a cudgel creates a powerful disencentive for oligarchs to pursue their own goals with other oligarchs in other nations or attempt to impose conditions, rules, and systems that favor them.
At the end of the day, you’re right. The free market isn’t really free. It can be trumped, no pun intended, by brute force and raw power. If enough people get angry enough, law and civil society breaks down and older, more basic forms of power and social organization take over. A big enough crisis could cause the US to dissolve the old currency and declare a new one, redeeming the dollars of citizens and screwing all foreign holders. A big enough crisis could see the US or any government seize private assets using the most ancient and time honored form of authority, force of arms. A popular hero at the head of an angry mob is among the oldest forms for power, and there is no magic in modernity that prevents a sufficiently large and powerful one sweeping away all modern assumptions about what is and what isn’t economically possible. Historically, those who think it “can’t happen here” or “can’t happen now” are often the ones who discover the hard way how wrong they are. It can happen here. It can happen now. Those who think it can’t should remember that pride is the commonest sin.
Simplistic I know … but the US govt must radically shrink the state … whether the new dept of DOGE will do it remains to be seen … but if they are to succeed they need to be closing down whole depts in Govt. leaving it to the private sector alone.
The big risk for China is them overreacting and doing something stupid and self defeating. They are desperate for stability to turn around their deflation and consumer confidence problem. Stimulus packages may work but maybe not. We shall see.
China has the advantage of not being a democracy. Can you see American consumers who have been sold ‘America First’* reigning in their consumption ? Me neither.
aka ‘America Alone’
No they won’t but they will massively hurt the US, both politically and economically.
This was a halfways decent article by a thorough and skilled author. No shade thrown at him personally, but his knowledge of Chinese business and economics is sadly lacking.
The tariffs and general decoupling of American and European business have been dragging down the Communist Chinese economy for the last few years, and it’s on track to increase dramatically. Anyone who knows anything about CCP economics knows this, and the selling and buying to poorer countries can’t pick up the slack.