It’s trade war time. Earlier this month, the Trump administration raised tariffs on all Chinese goods by a staggering 145%. In response, China hit back with 125% tariffs on American products, along with other strategic countermeasures. This is a classic trade war, where both countries are engaged in tit-for-tat economic retaliation, each aiming to force the other to back down and accept certain terms.
The Trump administration believes the U.S. holds the upper hand. Treasury Secretary Scott Basent recently stated, “We export one-fifth of what they do, so this hits them harder.” But that assumption is dangerously out of touch with reality.
America’s economy is deeply reliant on Chinese goods, and that dependency is its Achilles’ heel. China isn’t just a major supplier to the U.S.—it’s the world’s largest producer for many essential goods, and replacing those items is far from easy.
According to Jason Miller, a supply chain expert at Michigan State University, China manufactures over 70% of the world’s lithium-ion batteries, air conditioners, and cookware. They also produce over 80% of smartphones, kitchen appliances, and toys, and nearly 90% of solar panels and processed rare earth minerals—materials critical for cars, smartphones, and military tech.
Re-shoring the production of these items to the U.S. would take years, if not decades. It would require building new factories, training workers, and establishing entire supply chains. And for that, companies need long-term assurance that tariff policies won’t suddenly change.
On the flip side, China depends on the U.S. for very few products—mostly soybeans and sorghum, which it can easily import from elsewhere.
While Chinese exporters will lose access to the U.S. market, Beijing can redirect many of its exports to Europe and East Asia, where consumers also need phones, toys, and toasters. At home, the Chinese government can increase consumer demand by putting money directly into citizens’ hands and supporting domestic businesses through subsidies.
This imbalance gives China a strategic edge. Economist Adam Posen calls it “escalation dominance”—the ability to inflict disproportionate harm on an economic opponent.
China’s advantage stems from years of preparation. When Trump launched the initial trade war in 2018—imposing an average of 20% tariffs on Chinese goods—Beijing took it as a wake-up call. Since then, China has poured investments into energy, agriculture, and semiconductor manufacturing to reduce reliance on American imports.
China also began boosting domestic consumption and seeking new export markets, a strategy that aligns with President Xi Jinping’s goal of keeping the national economy running smoothly even in crisis.
But China hasn’t stopped at defensive moves. It’s also built a toolkit of economic weapons. For example, it has banned the export of certain rare earth elements vital for producing everything from electric vehicles to military jets. Chinese authorities have launched antitrust probes into DuPont and Google and severed business ties with Boeing, America’s top aircraft manufacturer.
If tensions escalate, China could bar U.S. giants like Apple and Tesla from operating within its borders. And in the most severe scenario, China—America’s second-largest foreign creditor—could dump a significant portion of its $760 billion in U.S. Treasury bonds. This would spike interest rates, rattle investors, and potentially trigger a financial crisis.
“China is fully prepared for this fight,” says Yeling Tan, a professor at Oxford University and expert on Chinese political economy. “They’ve been preparing for a long-term economic clash with the U.S.”
Despite these challenges, many analysts believe the U.S. could still win the trade war—if it played its cards right. But instead, the Trump administration seems determined to do the opposite.
Trade War Advantages of China
Although China has certain built-in advantages, the U.S. has a secret weapon—its allies. By forming a coalition with traditional partners in Europe, North America, and East Asia, the U.S. could isolate China economically. A united front could divert trade away from China, creating greater pressure on Beijing while spreading out the economic cost across multiple nations.
Such a strategy, however, requires careful planning. The U.S. and its allies would need a massive, coordinated effort to build new industries and monitor supply chains. Gradual implementation of trade restrictions would be necessary so that businesses and investors can adapt. And there must be clear conditions under which the trade war could be resolved.
Instead, Trump has pursued the opposite path. He’s offered no lead time for industrial investment, proposing to scrap clean energy and semiconductor initiatives launched under the Biden administration. He imposed massive tariffs on Chinese goods in a matter of weeks, gave investors no clear direction, and has flip-flopped on policy almost daily.
Rather than strengthening alliances, he’s threatened traditional allies and imposed tariffs on them too. Even if the U.S. now tries to rally a global coalition—something Secretary Basent recently proposed—it may be too little, too late. Why would any country align with a nation that has treated them poorly and shown no credibility in honoring agreements?
The outcome of a trade war depends not just on economic pain, but on each country’s willingness to endure it. On this front, the U.S. has one major advantage—its voters generally support a hard line against China.
Research on Trump’s first-term trade war shows that regions hardest hit by tariffs actually became more supportive of him in the 2020 election. And a CBS News poll from February 2024 found that 56% of voters supported new tariffs on China, even though they opposed tariffs on allies like Mexico, Canada, and Europe.
But public support is not unlimited. The key question is whether voter anger toward China will outweigh the pain of price hikes and product shortages. The first round of tariffs under Trump had a limited impact on inflation, but this time it’s different. A 145% tariff will inevitably lead to a sharp rise in prices.
In fact, inflation is now voters’ top concern for the 2024 election. If the very politician who promised lower prices ends up making things worse, how will voters respond?
Several recent polls suggest that even before the new tariffs took effect, most voters were already turning against them. China’s retaliatory actions only make things worse—hurting U.S. exporters and adding uncertainty that could drive businesses into retreat and push the economy into recession.
Economists are warning of a return to 1970s-style “stagflation”—soaring inflation combined with rising unemployment. This toxic mix could spark both political and economic instability.
Even Trump may not have the stamina to maintain this fight. He has already broken the number one rule of any trade war: never show your limits. When the bond market panicked, he paused his retaliatory tariff policies, revealing his threshold for pain.
“Beijing is very good at waiting,” says Dan Wang of the Hoover Institution. “They may not wait forever—but they can certainly outlast a U.S. election cycle.”
In the end, Trump may have to back down. This could take the form of a face-saving deal where China offers symbolic concessions. (That’s how the last Trump-era trade war ended.) But this time, China might not let him off so easily.
A retreat could instead come through broad carve-outs—sector-specific exemptions that effectively render the tariffs meaningless. Either way, the outcome would be the same: the U.S. puts itself through economic turmoil, with little to show for it.
China, meanwhile, may walk away stronger. Just last week, Spain announced plans to deepen ties with China. The European Union is working to settle its own trade disputes with China, including on electric vehicles.