A dollar invested in the S&P 500 the year
Nixon landed in Beijing is worth over US$270 today. China, which had negligible
industrial capacity in 1972, now produces more manufactured goods than the next
nine countries combined.
This is not to say that the fruits of globalization were
enjoyed equally within either economy. The CCP’s cultural genocide of the
Uighurs and the slow-motion death of the US industrial heartland are the
receipts: ruthless consolidation in China, hollowed-out communities, and rising
inequality in America. But this was the deal both sides made.
The US told itself fairy tales about economic liberalization
leading to a more democratic China; in fact, both populations simply got
significantly richer than the rest of the world. And to quote the bard, therein
lies the rub—in a US-China trade war, neither can win against the
other.
Victory in a US-China trade war is a competition about who
can lose the least. The true winners are the countries that can stay out of
the trade war, a difficult feat in a global economy so dominated by Washington
and Beijing.
It’s easy to assign President Trump’s first term as the
starting gun of the US-China trade conflict, since he ran on being tough on
China back in 2015. But the fight began in 2009 when the Obama administration
slapped a 35% tariff on tires from China.
Geopolitical forces were already well at work before Trump
and Xi came to power. Trump speed things up, but his pressure was always in
service of “the art of the deal.”
Then the pandemic hit. One doesn’t need to be a conspiracy
theorist to see that Beijing’s stubbornness made it much harder for the world
to control the virus.
The pandemic threw US-China relations off course and likely
helped Biden win in 2020—and Biden had no interest in making a deal with China.
Instead, he doubled down on Trump 1.0’s tough talk. Trump
2.0 prefers to pick up where he left off. His administration has threatened,
cajoled, and tariffed China to no end, but it was clear even on the campaign
trail that President Trump does not ultimately want to fight with China; he
wants to deal with China.
In the then-candidate’s own words in August 2024, “If
they want to build a plant in Michigan, in Ohio, in South Carolina,
they can—using American workers, they can.”
This is one of President Trump’s most maverick policy
choices. The US national security establishment and the rest of the “swamp” are
China hawks.
They see China as the next great peer competition to US
power in the world… and the most serious threat the US has ever faced. In terms
of sheer size, power, and wealth, they are correct.
Moreover, the hawks aim to use Trump’s threats, which Trump
needs as leverage in his negotiations, to realize their own goals in blocking
the rise of Chinese power.
China would also rather avoid a fight—the US is its single largest
export market, and exports make up roughly 20% of China’s GDP. When Trump 2.0
tariffs hit in 2025, bilateral trade fell 29%, yet the US remained China’s top
export destination.
China produces 28% of global manufactured goods but can’t
absorb them domestically, making the US the key buyer keeping its factories
running. Still, China is ready to fight if needed, knowing a nationalist
dictatorship can weather economic pain better than a liberal democracy.
It is evident that while the US and China have been
negotiating, China rolled out new trade rules that lay the legal
groundwork for punishing foreign companies that seek to shift their sourcing
away from China.
Over the weekend, China told five domestic
refiners linked to Iranian oil trade to ignore explicit US sanctions based on a
2021 Chinese law.
