US vs China, Both Lose, But Who Blinks First?

US vs China, Both Lose, But Who Blinks First?

PETER ON THE WRITERS’ HANGOUT PODCAST!

Almost every economic move Trump makes registers almost instant rejection by the financial community. Trump announces a tariff-driven economic policy. Stocks fall hard. Trump announces an electronic exemption to Chinese exports to the US. Stocks rise. Was that a “blink”? China sure thinks so. He announces a 90 day pause on the rest. Stocks rise. He still maintains that 10% minimum and absurdly high tariffs on the rest of Chinese imports. Stocks fall. Trump attacks the wildly respected Fed Chair, Jerome Powell. Stocks plunge. Trump stops pursing Powell. Stocks rise. The dollar reaches new lows against most foreign currencies. US treasuries, those bonds that finance our deficit, are being dumped into the marketplace, and interest rates on treasuries soar to maintain the market. Stocks fall. Powell and most of the top financial institutions predict an increasing likelihood of that dreaded “stagflation,” where the economy contracts but prices continue to rise.

Trump’s economic Rasputin, Peter “I love tariffs” Navarro, is uniformly rejected by the mainstream financial world, and it is clear that the underlying instability introduced to our economy by Donald Trump may be significantly irreversible. China’s President Xi Jinping, echoing sentiments from fellow autocrats around the world, has repeatedly stated that he believes the United States’ will self-destruct, yielding economic and political primacy to China. The United States, based simply on Trump’s policy choices, will, in Xi’s opinion, rapidly create a seriously damaged, also-ran, has-been, isolated US with a currency that will soon be rejected as the global reserve currency, the value metric that has government commodity and GDP pricing for decades.

And no, we have not been “ripped off” by getting quality cheap goods, any more than any US department store having a “sale” is “ripping” off American consumers. Consumers have been the big winners when goods are less expensive. We seem to forget that we have not been a manufacturing company for decades, and that our soaring mega-successful economy comes from the fact that 80% of non-government employment and value creation has come from our service sector (design, engineering, financial structuring, copyrights, patents, software design, etc.). The United States will never be primarily a manufacturing nation, and what little growth is even possible may well be mostly relegated to AI-enabled automation.

So it’s China vs the US. China has the autocratic ability to withstand pain a whole lot better than does the United States, but neither side is well-situated to endure the hardships that a trade war between these two nations will impose. In fact, it is this particular two-nation dispute that seems to be the primary motivation for Trump’s overall “fun with Dick and Jane” tariff battle. The second line, in Trump’s negotiations with smaller economies, is to force them to cut back trade with China. As for the larger nations, Trump believes his divide and conquer strategy – making even larger countries pick sides, and if they do not pick the US, retribution rises – will isolate China and benefit the US. But almost everything Trump embraces, from tariffs and trade restrictions to cruel and severely punitive immigration policies, is clearly isolating the United States and alienating its traditional allies. Writing for the April 22nd Wall Street Journal, Micah McCartney explains:

“‘The United States already missed a great chance to help form an anti-PRC [People's Republic of China] trade coalition when it left the Trans-Pacific Partnership in 2017,’ Sean King, Asia scholar and senior vice president at Park Strategies, told Newsweek, referring to a trade group Trump quit shortly after taking office.

“While many countries friendly to the United States hope to reduce reliance on trade with China, they may not trust Trump not to reach his own bilateral deal with Beijing and leave them in the lurch ‘especially, as he so often reminds the world, how much he likes and respects Xi Jinping,’ King added… ‘Until we stop picking needless fights with our friends and allies, I sadly think it's going to be every country for itself.’

“Independent economist Andy Xie believes China is better prepared to dig in for the long haul compared to during Trump's first term… ‘Over the last six years, I think people have become more and more confident because there are all these tech sanctions. Most were broken through. And in terms of software, the substitutes for Android, for Windows...are all there,’ he told CNBC….’[...] So that's why it's willing to negotiate, play hardball with the U.S. and it's willing to risk a complete decoupling with the U.S.’…

“To further turn up the heat on China, Trump administration officials are pressuring over 70 U.S. trade partners to scale back trade with the world's second-largest economy and even introduce their own tariffs, The Wall Street Journal wrote last week, citing sources familiar with the discussions… This strategy—reportedly backed by Treasury Secretary Scott Bessent—is meant to be a force multiplier that could further bite China's economy—which has been grappling with slowing growth, lackluster domestic demand, and a long-running housing market crunch. That could force Beijing to negotiate…

“But rather than negotiating, Chinese President Xi Jinping is in the midst of a charm offensive, seeking to rally support from nearby Southeast Asia to Europe… After years of aligning more closely with the United States on China over concerns about national security and over alleged Chinese industrial oversupply, some U.S. allies in Europe are pushing back against Washington and even signaling they're considering a relative thaw in trade relations with China… ‘China is the second biggest economy in the world, and it would be, I think, very foolish to not engage. That's the approach of this government,’ U.K. finance chief Rachel Reeves told The Telegraph.”

So what now? On April 23rd, Trump suggested that the tariff war with China will be negotiated (perhaps such discussions have already begun). Trump took the first step, because Xi never would. But immediately following his optimistic trade statement, in an impromptu press meeting in the White House maintenance yard, Trump resumed his tough talk on stopping virtually the entire world from “ripping us off,” a riff that would make any company on Earth that had a sale or discount an equally “rip off” culprit. Donald: Manufacturing quality products and exporting them to the US so consumers can afford them is not “ripping off” consumers, particularly since we are primarily a service economy. It is a major part of Wal*Mart’s and Costco’s core business plan.

On a global level, and increasingly within the United States, by reason of Trump’s erratic economic policies, added to the particular failures of DOGE and RFK, Jr’s negation of medical science, Trump is seriously damaged goods. Can he recover? Can he avoid voter retribution through rising autocracy? Can the United States recover? Is China smirking through its own economic pain?

I’m Peter Dekom, and as Trump stumbles, mistake after mistake, I wonder and worry if Xi’s vision of America may actually become our reality.