US-China trade war: Who will suffer most in the tariff hikes? | DW News

Key Concepts

• US-China trade war: Tariffs, escalation, de-escalation, uncertainty
• Geostrategic competition: US vs. China, economic influence, political pain
• International trade: Impact of tariffs, alternative trade partners, decoupling
• Political positioning: Trump, Xi Jinping, domestic support, accountability
• EU-China relations: Potential alliance, strategic implications, transatlantic relations

US-China Trade War: A Pause in Escalation

The US has decided to halt further tariff increases on Chinese goods, maintaining the current 14.5% level, despite China's retaliatory tariffs of 25% on US imports. This pause doesn't resolve the underlying issues but prevents immediate escalation.

• Tit-for-tat tariffs: The US and China have been engaged in reciprocal tariff hikes, creating uncertainty for businesses.
• White House stance: The US will not increase taxes on Chinese goods above the current 14.5%.
• China's response: China hiked its tariffs on US imports to 25% starting on Saturday.

Potential for a Deal and its Implications

President Trump has expressed openness to a deal with Xi Jinping, potentially leading to a "part two" of the previous US-China trade deal. However, the uncertainty created by the trade war may have long-term consequences.

• Trump's approach: He may initiate contact to present himself as a "great dealmaker."
• Potential deal structure: Could involve reducing tariffs on both sides, potentially back to levels seen in the first Trump administration. Agreement on import volumes, especially US demands for increased Chinese imports of US products.
• Uncertainty's impact: The tariffs have created a "Pandora's box of uncertainty," making long-term planning difficult for businesses. Even a 90-day pause offers little reassurance.

Economic and Political Positioning

China exports more to the US than the US exports to China, suggesting China has more to lose economically. However, China's political system allows it to absorb economic pain more easily than the US.

• Economic imbalance: China's exports to the US are greater than US exports to China.
• Political pain: The US political system, being a democracy, is more susceptible to public pressure and voter sentiment.
• Xi Jinping's power base: Xi's primary constituency is the Communist Party, not the general public, allowing him to withstand economic pressure.

Geostrategic Competition and Decoupling

The trade war is not purely economic; it's a larger geostrategic play. Some analysts suggest that the tariffs could be a way to "decouple" or "de-risk" the two economies, hedging against potential conflict, particularly over Taiwan.

• Security dimension: The trade war is intertwined with security concerns and geopolitical strategy.
• China's preparations: China has been stockpiling commodities and derisking itself from the international system.
• Decoupling as a strategy: Tariffs could be a way to gradually decouple the US and Chinese economies to mitigate risks of future conflict.

EU-China Relations and Shifting Alliances

President Xi is seeking closer ties with the European Union to counter Trump's trade policies. However, analysts warn that Europe pivoting towards China would be a "tremendous mistake" and could weaken transatlantic relations.

• China's strategy: China aims to divide the US and Europe to strengthen its own position.
• EU's potential mistake: Aligning too closely with China could be detrimental to Europe's long-term interests.
• Transatlantic unity: Maintaining strong US-Europe relations is crucial to counter Chinese and Russian influence.

China's Strategic Tools and Vulnerabilities

China's ability to retaliate in the trade war is limited because it buys less from the US than it sells. While China could cause temporary pain, the US has the capacity to bear the costs, albeit with some economic consequences.

• Limited retaliation options: China's weaker trade position limits its ability to inflict economic damage on the US.
• Rare earth minerals: While China controls the processing of rare earth minerals, this could be moved to other countries at higher costs.
• Potential for inflation: American consumers will experience a rise in prices for both imported and non-imported goods.

China's Internal Dynamics and Historical Context

China's leadership views the trade war through the lens of historical grievances and a desire to be seen as an equal to the US. Xi Jinping is drawing on Maoist ideology to project resilience in the face of external pressure.

• Historical perspective: China views the trade war as a continuation of historical attempts by foreign powers to suppress its economy.
• Xi's playbook: Xi is using Maoist rhetoric to signal that China can withstand the pressure from the US.
• People's Daily quote: "The sky is still standing," a quote from Mao, suggests resilience and determination to survive the trade war.

Conclusion

The US-China trade war is a complex issue with economic, political, and geostrategic dimensions. While a temporary pause in escalation has been reached, significant uncertainty remains. The potential for a deal exists, but the long-term consequences of the trade war, including its impact on international trade and alliances, are still unfolding. The conflict highlights the differing political systems and priorities of the US and China, as well as the importance of transatlantic unity in addressing the challenges posed by a rising China.