Trump "Has No Cards" in China Trade War

Interview with Mike Whitney

Reporter Mike Whitney and I emailed each other to swap thoughts on the trade war last week. Mike put together the bits and pieces of our conversation into the following short interview note, which is now on Unz Review. https://www.unz.com/mwhitney/chinas-tariff-smackdown/#comments

Question 1-- What are Trumps tariffs on China supposed to achieve, and will they succeed?

Hua Bin-- I don't think Trump has a clear answer himself because many of the supposed motivations are contradictory and historically he is a shoot-from-the-hip type guy - no deep thinking, always swinging, never ashamed of his own contradictions and blatant lies.

That said, he has referred to several objectives:

1-- Tariffs as a revenue source to offset his intended tax cuts for the donor class

2-- Using tariffs to reshore manufacturing and reindustrialize

3-- Tariffs as a way to embargo trade with China

4-- Tariffs as a negotiation tool to get concessions from trading partners (to buy more US goods, invest in the US, buy 100-year interest free US Treasuries, purchase US weapons, etc. Many of the objectives have been articulated by his economic advisor, Stephen Miran. These are also in the Heritage Foundation Project 2025 blueprint.)

In Trump's mind, numbers 2, 3 and 4 are all linked to China; China is the main perpetrator of manufacturing job-loss in the US. So, reindustrialization is largely about bringing jobs back from China. Imposing trade sanctions on China, even a full embargo, has long been in the cards as part of the decoupling of the two economies and preparation for an eventual military conflict. In fact, both sides want to reduce or eliminate dependencies on each other at this point. Trump is just less patient and strategic.

Lastly, I have no doubt that the concessions Trump wants from other trading partners are aimed at reducing their economic ties with China. The goal is to isolate China economically. (as explicitly articulated by Bessent and Lutnick.) This is essentially what the West did to Russia after the Ukraine war broke out, but Trump is ready to push the schedule ahead in the absence of a better excuse.

Trump may think he is playing 3D chess, but his plan has not been well-thought out, which is obvious now that China has refused to back down. After stocks, bonds and the Dollar went into free fall, he panicked and rolled back part of his program, which is a clear sign of poor preparation and faulty assumptions. Of course, he didn't hesitate to help his family and friends to profit from the market turmoil through insider trading (similar to the way Hunter Biden used his father's influence for self-enrichment).

Other indications that his plan was half-baked, include the laughable math behind the "reciprocal" tariff calculation and the many contradictions of what he was trying to accomplish. For example, why did he choose to humiliate the trading partners who came to negotiate ("Kiss my ass")? If he was serious about enlisting their help to embargo China, then how did he expect to do that without inputs from the largest manufacturing power in the world, China, who controls many of the critical supply chains?

Personally, I would have fired anyone who presented me with such a poorly thought-out business plan. But the US is now a state that is ruled by just one man, so there's no accountability and no one to hold Trump's feet to the fire.

Question 2-- Which country will be hurt more by the tariffs: US or China?

As China has repeatedly said, there are no winners in a trade war. But in the absence of a negotiated settlement in the next few months, China will likely suffer some short-term pain from loss of the US consumer market. This is going to impact GDP and employment.

Clearly, the country needs to stimulate more domestic consumption, which is now more urgent than ever. It also needs to redirect some trade to other countries. There could be deflationary pressures domestically, but China has plenty of ways to fiscally stimulate consumption to mitigate the impact, especially since the state controls the flow of credit rather than private interests like the Fed.

Longer term, the current trade war will likely pave the way for a complete decoupling between the world's two economic superpowers. (similar to the separation between Russia and the West.)

On the US side, the short-term impact means the loss of the Chinese market for its agricultural and energy products (which represent 70% of Chinese imports from the US). Inflation is inevitable. There will be shortages of certain goods for consumers, businesses, and for many US manufacturers that rely on imported parts, components and critical minerals from China for their production. (such as machine tools, rare earth, battery, and active pharmaceutical ingredients.)

The main thing to remember is that China sits at the very top of the global supply chain whereas, the US is at the bottom. So any disruptions to the supply chain will cascade down to the US and get amplified.

Given China's pole position in many high-tech manufacturing supply chains, these impacts are likely to become long term problems. US businesses may need to make major CAPEX investments to build domestic supply chains, factories, and skilled labor, etc., at a cost of hundreds of billions. But while they are developing those industries, their manufactured goods will not be competitive in international markets, so they won't generate a positive return on investment. Few corporate executives will be inclined to make such expensive capital decisions without policy continuity. But Trump's flip flop on these matters is certainly no help.

In my opinion, the US will find the transition extremely painful and may eventually capitulate. I suspect this is why China is taking a hard line and has made it clear it will fight to the end if the US wants to impose an unequal deal. In other words, Trump has no cards vis-a-vis China.

Question 3-- In your opinion, should Trump seek greater economic integration with China or continue along the current path of economic isolation, sanctions and conflict?

There is no doubt that economic cooperation is mutually beneficial and, frankly, the US could use China's help to reindustrialize if this is the real goal. And the two economies are complimentary in many ways.

The US actually runs a multi-billion surplus with China in services although the Trump regime chose to focus entirely on the trading of merchandise where it runs a structural deficit with most of the world. (Note-- In 2024, the U.S. trade deficit with China was approximately $295 billion for goods alone, according to the U.S. Census Bureau. When including both goods and services, the deficit was around $263 billion, as reported by the Bureau of Economic Analysis.)

The US exports far more tech, IP, financial services, business services, education, and tourism to China than the other way around. The two economies have many synergies. However, given the current US political consensus to treat China as the bogeyman for the New Cold War, any compromise is highly unlikely. And, even if a deal is struck, I don't think there's enough trust on either side to sustain an agreement for long.

So an economic and trade divorce is a high-probability outcome, if not immediately, then in the next 3 to 5 years. The world is likely to bifurcate into two camps with most nations trying to find a balance between China and the US.

In the long run, my view is that China has the more dynamic economy that can weather the storm and emerge triumphant. In contrast, the US will find it much harder to muddle through.

Of course, the worst option for the United States would be a direct military confrontation with China. As I have explained in earlier articles, the US would lose such a war with China which would mark the last step of America's decline.

If that were to happen, the world would need to come together to rebuild the international order.