Trump plays loudly and delivers the victory to China

American president increases rates against China to over 100%, but ignores US dependence on Chinese inputs and risks a stagflation crisis

“When a country (USA) is losing many billions of dollars in commerce with virtually every country with which it does business,” The then US president, Donald Trump, tweeted famously in 2018, “Commercial wars are good and easy to win.” This week, when the Trump administration imposed more than 100% rates on China’s American imports, triggering a new and even more dangerous trade war, US Treasury Secretary Scott Bessent offered a similar justification: “I think it was a big mistake, this Chinese climb, because they are playing with a couple of two. What did we lose with China increasing tariffs against us? We exported one fifth of what they export to us, so it’s a losing hand to them.”

In short, the Trump government believes it has what theorists of games call “Domain climbing” about China and any other economy with which it has a bilateral commercial deficit. Mastery of climbingin the words of a report of Rand Corporation, it means that “A combatant has the ability to scale a conflict of ways that will be disadvantageous or costly to the opponent, while he cannot retaliate in the same way.” If the government’s logic is correct, then China, Canada and any other country that retaliates against US tariffs is, in fact, throwing a losing hand.

But this logic is wrong: It is China that has the mastery of climbing in this trade war. The US imports essential goods from China that cannot be replaced anytime soon or produced without prohibitive costs. Reducing this dependence can be a reason to act, but crashing this war before doing so is a recipe for almost certain defeat at a huge cost. Or, in Bessent’s words: Washington, not Beijing, is betting everything in a losing hand.

Show your hand

The government’s arguments are wrong for two reasons. First, both sides are impaired in a trade war because they lose access to goods and services that their economies desire and need, and their populations and companies are willing to pay. How to start a real war, a trade war is a destructive act that endangers both the forces of the aggressor and its own rear: if the defender side did not believe that it could retaliate in order to harm the aggressor, he would surrender.

Bessent’s analogy with poker is misleading because poker is a zero sum: I only get it if you lose, and you only win if I lose. Trade, on the other hand, is positive: in most situations, the better you are, the better I am, and vice versa. In poker, you only recover what you put in the pot if you win; In commerce, you recover immediately, in the form of the goods and services you buy.

The Trump government believes that, The more you matter, the less you have to lose – That, as the US has commercial deficit with China (importing more from China than exporting to it), are less vulnerable. This is factually wrong, not a matter of opinion. Blocking trade reduces real income and purchasing power of a country; The nations export to make money and buy what they do not produce or that would be very expensive internally.

Also, even if it focuses only on the bilateral commercial balance, as the Trump government does, this is a bad omen for the US in a trade war with China. In 2024, US Exports of Goods and Services to China were $ 199.2 billion, while Chinese imports totaled US $ 462.5 billion, resulting in a $ 263.3 billion deficit. If the bilateral balance indicates which side will “overcome” a trade war, the advantage is with the economy surplus, not the deficit. China, surplus, is giving up sales – that is, only money; The US, deficient, is giving up goods and services that do not produce competitively or even produce internally.

Money is fungible: If you lose income, you can cut spending, find sales elsewhere, distribute the burden around the country or use reserves (for example, with fiscal stimulus). China, like most surplus countries, saves more than invests – that is, in a sense, has excessive savings. The adjustment would be relatively easy. There would be no critical shortage, and it could replace much of what it sells to the US with domestic sales or other countries.

Already deficient countries, such as the US, spend more than save. In commercial wars, they give up or reduce the supply of necessary goods (as tariffs make them more expensive), and these goods are not as fungible or easily replaced as money. Thus, the impact is felt in specific industries, regions or families that face scarcity – sometimes of essential items, some irreplaceable in the short term. Deficient countries also import capital, which makes the US more vulnerable to changes in the perception of its government’s reliability and its attractive business. When the Trump government makes arbitrary decisions to impose a huge tax increase and great uncertainty on supply chains, the result will be less investment in the US and higher interest rates on its debt.

Deficits and domain

In short, the US economy will greatly suffer in a large -scale trade war with China – such as the more than 100% tariffs imposed by Trump certainly, if kept. In fact, the American economy will suffer more than Chinese, and suffering will only increase if the US climbs. The Trump government may think it is acting hard, but it is actually putting the American economy at the mercy of Chinese climbing.

The US will face scarcity of critical inputs, from basic drug ingredients to cheap semiconductors used in cars and appliances, through essential minerals for industrial processes, including weapons production. The shock of supply caused by the drastic reduction or elimination of imports from China, as Trump claims to want, would mean stagflation – The macroeconomic nightmare seen in the 1970s and during Covid’s pandemic, when the economy shrunk and inflation rose simultaneously. In this situation (which may be closer than many think), Fed and Fiscal Policy formulators will only have bad options and little chance of avoiding unemployment without further raising inflation.

In the case of a royal war, if you fear being invaded, it would be suicidal to provoke the opponent before setting up. It is essentially what Trump’s economic attack risks: given that the American economy depends entirely on China for vital goods (pharmaceutical raw materials, cheap electronic chips, critical minerals), it is foolhardy not to guarantee alternative suppliers or adequate domestic production before cutting trade. In doing the opposite, the government is causing exactly the kind of damage it says want to avoid.

All of this can just be a negotiation tactic, despite the repeated statements and actions of Trump and Bessent. But even in this case, the strategy will cause more harm than well. As alerted in Foreign Affairs Last October, the fundamental problem of Trump’s economic approach is that it would need to fulfill self -destructive threats to be believable – which means that markets and families would expect constant uncertainty. Americans and foreigners would invest less, in the US economy, and would no longer trust government to honor agreements, making it difficult. As a result, the US productive capacity would decline, increasing the bargaining power of China and others over the US.

The Trump administration is embarking on an economic equivalent of the Vietnam War – an optional war that will soon become a quagmire, undermining internal and external confidence in US credibility and competence. And we all know how it ended.

By Adam S. Posen, for Foreign Affairs*