A trade war is coming. President-elect Donald Trump this week said he would open his presidency by inflicting new tariffs on imports from Canada, Mexico and China. The U.S.-China battle over trade could have the biggest geopolitical impact. It’s not clear which side would come out the winner.
Trump initiated an earlier round of trade battles in 2018, said The Economist, exchanging “tit-for-tat tariffs” that the Biden administration largely left in place. Trump’s re-election “will intensify” that conflict in 2025. It couldn’t come at a worse time for China, with an economy already in the doldrums thanks to a crisis in the real estate sector. Beijing responded to that challenge by leaning on the manufacturing exports that are now likely to be targeted by the United States. The effects of a renewed trade war are likely to spill over to the rest of the world economy, said the magazine. “Sitting out the conflict is no longer much of an option.”
‘China has been preparing’
China’s economy is “asymmetrically vulnerable to a trade fight,” Hal Brands said at Bloomberg. But Beijing is “sharpening its weapons.” China’s leaders have already announced new exports of “key metals” like magnesium (used to manufacture smartphones and airplanes) which could be a problem for the United States. China “accounts for around 80% of global production of magnesium,” said Brands.
China is “armed and ready for trade war 2.0,” said CNN. The country’s economy looks “diminished” after the challenges of recent years and looks unready for another fight with Trump. Don’t be fooled. “China has been preparing for this day for quite some time,” said Dexter Roberts, author of the Trade War newsletter. Beijing has reduced the country’s dependence on American trade since the first Trump administration — and may avoid another set of back-and-forth tariff announcements this time, instead targeting individual American companies doing business in China. “We have the ability to resolve and resist the impact of external shocks,” said Wang Shouwen, vice minister of commerce.
Other measures suggest a new trade war could “tip Xi Jinping’s teetering economy over the edge,” Melissa Lawford said at The Telegraph. China has stopped publishing some economic data, like its bout with record-high youth unemployment, to hide its problems. But satellite data reveals that the first Trump tariffs caused Chinese factories to literally go dark by “operating shorter shifts, cutting night-time production.” The U.S. remains China’s largest trading partner. A trade war will hurt. “It is going to be a further drag on the Chinese economy,” said Davin Chor, a Dartmouth College economist.
Is a deal possible?
Some observers are hoping for a way out. Trump is an “excellent business deal-maker” who might be eager to sign a new agreement with Xi that would create “millions of jobs” in the United States, said John Milligan-Whyte, chairman of the America-China Partnership Foundation, at China Daily. Trump is taking his own risks with a new trade war: China and America together account for 41% of the world’s gross domestic product. “Neither the U.S. nor China can win relentless zero-sum game competitions.”