President Donald Trump promised to end wars, not start them. Yet, he has announced what could become one of the most disruptive trade wars in history, shaking the foundations of global commerce. He stated he would impose sweeping tariff hikes—up to 60%—against imports from China, the nation he views as a strategic adversary, and 10% to 20% on other countries, including allies. His cabinet and Congress, whether in agreement or dissent, seem aligned with this course. There may be grounds to believe that such measures could either cripple China or compel it to negotiate from a position of weakness. China finds itself in an increasingly precarious economic situation, struggling to gain traction despite the government’s efforts. But it’s not the whole picture.
The Chinese Predicament
In 2008, the Chinese economy was approximately $4.5 trillion; by the end of 2024, it is projected to reach around $18.5 trillion. During the 2008 global financial crisis, China’s stimulus package was about $1.2 trillion—around 25% of its GDP—dispersed within a few months. In contrast, the current stimulus has totaled approximately $1 trillion—5% to 7% of GDP—spread over a year. While the figures may vary, they illustrate the different scales and impacts of governmental intervention in these two historical moments.
Moreover, China was politically closer to the United States in 2008, but now it is ensnared in a semi-cold war. At that time, ordinary Chinese citizens and foreign investors had a semblance of trust in their property rights, however vaguely defined. They believed they were on a path toward greater security and reform, anticipating that China would soon make its currency fully convertible and gradually open its vast market.
Today, most perceive property rights as uncertain and subject to the whims of the Communist Party. Further reforms appear doubtful, and the prospects for democratization seem dim, with markets becoming increasingly closed and the renminbi tightly controlled.
These sentiments—coupled with the vast sums expended on partially ineffective economic measures—paint a stark picture of the Chinese economy, contrasting sharply with its 2008 state. Back then, the economic stimulus was deemed excessive but necessary to avert global recession. Today, amid a booming global economy, China may require significantly less intervention, yet the climate of uncertainty has dramatically shifted. Moreover, the government seems keen on stabilizing the economy, securing debts from local governments, and not boosting consumer trends.
Can the Chinese economy improve? Exports are setting record highs, fueled by products that offer an unbeatable quality-price ratio. Critics, however, argue this performance stems from government subsidies, an artificially low exchange rate, and suppressed domestic consumption—Chinese citizens have roughly 40% disposable income compared to 80% in developed nations. Such policies are prompting an increasing number of countries to erect barriers around Chinese trade.
For a time, China may manage to navigate these challenges by rerouting exports through third-party nations, but this strategy is not sustainable. The core issue lies in politics, not merely economics.
Three Options
With this predicament, China is not merely trapped in a corner; it has three primary options. This is important to consider in the US.
The first would be to accept a path to reopen society. But it is risky. The party and the government may not be prepared to withstand the shock, could lose ground, and could cause the country to spin into chaos, or at least this is the officially proclaimed fear.
The second approach is that China could move toward a “North Koreanization” approach, accepting that the nation may grow poorer. Many Chinese citizens—homeowners, only children, and an aging population—are unlikely to seek revolution; instead, they are likely to grumble quietly against a backdrop of official propaganda that blames America’s envy for their troubles.
While capital and investment continue to flow out of the country and public dissatisfaction grows, evidence from North Korea, Iran, and Russia suggests that disgruntled populations alone do not typically topple regimes, particularly in an era characterized by pervasive technological surveillance. Living standards may decline, and public sentiment may darken, but after enduring virtual detention during COVID, many Chinese might find their resilience extended.
However, “North Koreanization” brings its own complications. Excessive pressure from officials could lead the government to externalize its challenges by provoking conflict along its borders, hoping to galvanize support through a quick and victorious military campaign.
Plus, can it work? North Korea went through centuries of feudal closure and 80 years of stifling dictatorship. It’s a small country, totally isolated, almost an island. China is very different. In theory, it can close down, but it could be a nightmare. People are far too many and far too diverse, and they have been exposed to a relatively open society for decades; an international elite drives the economy, the exports, and the technology. Without the technology and the economy, the country would shrink, soon fall behind technologically, and lose all it has gained in the past 40 years.
A third option—perhaps the most plausible—is for China to withstand the pressure until the United States, known for its impatience, tires of the costly trade war and reassesses its approach. After all, a full-scale trade war may not unfold as anticipated. A 60% tariff hike on Chinese imports could skyrocket inflation in the US and deliver an unbearable shock to the economy. The rhetoric may intimidate China, provoking fear rather than decisive action.
In the meantime, China is likely to maintain strong ties with Russia and broader channels with India while remaining open to dialogue with other nations. This could save China from a political and economic encirclement strategy.
An American trade war could foster discontent and drive many countries to seek closer relations with China. Moscow may remain skeptical of the US, wary of its track record in diplomatic negotiations. India might also aim to balance its relationships, recognizing China’s recent willingness to make territorial concessions.
China, however, may think it possesses limited room for concessions.
But so does the US. If the United States accepts anything less than a comprehensive opening up of China, the same issues may resurface in a few years with even greater intensity, leaving the nation in a state of desperation.
Three Wars and a Complex Landscape
Currently, the US is embroiled in two conflicts—one in Ukraine and another in the Middle East—and disentangling itself from these situations will not be easy. As negotiations unfold, China will be watching closely, especially regarding how a potential resolution plays out in Ukraine. Compounding matters is the challenge North Korea poses, which has become integral to Russia’s broader strategy of escalating global tensions. However, North Korea is a wild card in the volatile Far Eastern scenario. Besides, North Korea has become almost a model of stability for China. Beijing may be reluctant to sacrifice Pyongyang. This gives North Korean leader Kim Jong-un perhaps unprecedented leverage over the two giants.
The conclusion of the conflict in the Middle East remains equally murky. While Israel and several regional allies may seek to counter Iran’s influence, the extent of their pushback is uncertain. The European Union’s precarious unity could begin to crack. The recent row around the weak majority of UE President Ursula von der Leyen and the fall of the German governments literally hours after Trump’s elections are evidence of it. Some in the US who oppose Europe may consider this a cause for celebration. However, reshaping the EU or dealing individually with 27 restive countries is no small feat and could be a significant headache for Washington, which may want to have the brain width to concentrate on China.
Consequently, China may afford not to yield, and the US may not afford to relent. The Chinese government is girding itself for a long-term struggle that may span decades. This context underscores the need for the US to adopt a long-term strategy; the challenges posed by China will not be resolved within the next four years. This could be Trump’s most important legacy – to lay the foundations for a new world order.
Furthermore, the tariffs imposed by the US on the EU and other nations could inadvertently drive those countries closer to China. While China maintains its own tariffs and trade barriers, these are longstanding issues that global trade has already accounted for. In contrast, new US tariffs would disrupt the status quo, leading to unforeseen consequences. Ultimately, a new trade system will emerge. Still, in the meantime, China may gain valuable time while the US risks alienating allies and destabilizing a global system that has served as a delicate web of interdependence.
A different approach might be more beneficial for the US: forging a new world order in which allies are pillars and obligated to contribute meaningfully to the overall security. Meanwhile, the US should also find avenues to engage with adversaries under specific conditions. Achieving this will require significant effort and careful calibration.
