Why Xi Holds the Upper Hand in the US-China Trade War

Trump’s Tariff Strategy Is Backfiring

Former President Donald Trump’s aggressive tariff strategy against China is rapidly unravelling. After a series of rapid policy reversals — including a temporary exemption on smartphones and consumer electronics — the White House appears to be reacting more than leading.

Despite Trump’s defiant claim that “NOBODY is getting off the hook”, the reality is that his trade war approach is beginning to hurt the US more than China.

China’s Trade Position Is Stronger Than It Seems

The core flaw in Trump’s thinking lies in the assumption that China is at a disadvantage because it exports far more to the US than vice versa. But this actually gives China more leverage, not less. Americans depend on Chinese goods — from iPhones to air conditioners — and will feel the pinch when prices rise or products vanish from shelves.

China doesn’t rely on the US as much. Only around 14% of China’s exports go to America, meaning US tariffs, while inconvenient, are not a significant threat to its vast economy.

US Consumers Will Bear the Brunt

Trump's tariff exemptions on smartphones and tech have revealed a key truth he long denied: tariffs are paid by importers, not exporters. With 80% of iPhones made in China and the majority of US electric fans, air conditioners, dolls and bikes also Chinese imports, prices are bound to rise. Americans are unlikely to tolerate these increases — especially in an election year.

Building new manufacturing capacity in the US may be possible, but it will take time and money — and likely result in more expensive goods.

China’s Hidden Leverage

If the trade war escalates, China holds some powerful cards:

• Medical Supply Chain: Nearly half of the ingredients in US antibiotics come from China.
• Defence Vulnerability: Key components of the F-35 fighter jet depend on Chinese rare earths.
• Financial Power: China is one of the largest holders of US Treasury bonds.

Beijing also has the advantage of a tightly controlled political system, better able to endure economic hardship than a democracy heading into an election.

Trump’s Strategy Lacks Long-Term Planning

While China has spent years preparing for a potential trade conflict, the Trump administration appears to be improvising. Each policy shift undermines the previous one, causing confusion at home and signalling weakness abroad.

Calls from the US for Xi Jinping to engage in talks have so far gone unanswered. With the US retreating, there’s little incentive for China to negotiate on Washington’s terms.

Final Word: Trump’s Losing Hand

Despite bold rhetoric, Trump appears to have overestimated his bargaining power. His trade war is backfiring, causing more damage at home than abroad. Unless a clear and credible strategy emerges, he may be forced to back down — quietly.

Source: (FT.com)