China's Tariff Smackdown
Interview with Hua Bin
MIKE WHITNEY AND HUA BIN

Question 1—What are Trump’s tariffs on China supposed to achieve, and will they succeed?

Hua Bin— I don’t think Trump has a clear idea himself because many of the supposed goals are contradictory and historically he is a shoot-from-the-hip type guy – no deep thinking, always swinging, and never ashamed of his own blatant lies.

That said, he has referred to several objectives:

1. Tariffs as a revenue source to offset his intended tax cuts for the donor class
2. Using tariffs to reshore manufacturing and reindustrialize
3. Tariffs as a way to embargo trade with China
4. Tariffs as a negotiation tool to get concessions from trading partners (to buy more US goods, invest in the US, buy 100-year interest free US Treasuries, purchase US weapons, etc.)

In Trump’s mind, numbers 2, 3 and 4 are all linked to China. China is the main perpetrator of manufacturing job-loss in the US. So, reindustrialization is largely about bringing jobs back from China. Imposing trade sanctions on China—even a full embargo—has long been in the cards as part of the decoupling of the two economies and preparation for an eventual military conflict. In fact, both sides want to reduce or eliminate dependencies on each other, although Trump is much less patient and strategic.

Lastly, I have no doubt that the concessions Trump wants from other trading partners are aimed at reducing their economic ties with China. The goal is to isolate China economically. (as explicitly articulated by Bessent and Lutnick.) This is essentially what the West did to Russia after the Ukraine war broke out, but Trump is ready to push the schedule ahead on China in the absence of a more credible pretext.

Trump may think he is playing 3D chess, but his plan has not been well-thought out, which is obvious now that China has refused to back down. After stocks, bonds and the Dollar went into free fall, he panicked and rolled back part of his program, which is a clear sign of poor preparation and faulty assumptions. Of course, he didn’t hesitate to help his family and friends profit from the market turmoil through insider trading (similar to the way Hunter Biden used his father’s influence for self-enrichment).

Other indications that his tariff strategy is half-baked, include the laughable math behind the “reciprocal” tariff calculation and the many contradictions of what he was trying to accomplish. For example, why did he choose to humiliate the trading partners who came to negotiate (Trump says, “Kiss my ass”)? If he was serious about enlisting their help to embargo China, how did he expect them to do that without inputs from the largest manufacturing power in the world (China) who controls many of the critical supply chains?

Personally, I would have fired anyone who presented me with such a poorly thought-out business plan. But the US is now a state that is ruled by one man alone, so there’s no accountability and Trump can do whatever he wants.

China Foreign Minister Wang Yi: “We will uphold the basic rules of free trade. We will not bow to power politics or bullying. “video (2 minutes)

Question 2—Which country will be hurt more by the tariffs: US or China?

Hua Bin—As China has repeatedly said, there are no winners in a trade war. But in the absence of a negotiated settlement, China will likely suffer more short-term pain from loss of the US consumer market. This is going to impact GDP and employment. Clearly, the country needs to stimulate more domestic consumption, which is now more urgent than ever. It also needs to redirect some trade to other countries. There could be deflationary pressures domestically, but China has plenty of ways to fiscally stimulate consumption to mitigate the impact, especially since the state controls the flow of credit via state-owned banks. Longer term, the current trade war will likely pave the way for a complete decoupling between the world’s two economic superpowers. (similar to the separation between Russia and the West.)

On the US side, the short-term impact means the loss of the Chinese market for its agricultural and energy products (which represent 70% of Chinese imports from the US). Inflation is inevitable. There will be shortages of certain goods for consumers, businesses, and for many US manufacturers that rely on imported parts, components and critical minerals from China for their production. (such as machine tools, rare earth, battery, and active pharmaceutical ingredients.) The main thing to remember is that China sits at the very top of the global supply chain whereas, the US is at the bottom. So, any disruptions to the supply chain will cascade downward amplifying the damage to the US economy. 

Given China’s pole position in many high-tech manufacturing supply chains, these impacts are likely to become long term problems. US businesses will need to invest more in CAPEX to strengthen domestic supply chains, factories, and skilled labor, etc, at a cost of hundreds of billions of dollars. Unfortunately, these new American industries will face stiff competition in international markets and are unlikely to be profitable for quite some time. Also, there aren’t many corporate executives who will want to invest the capital required to reindustrialize without explicit assurances from the government that their investment will be protected. (Trump’s flip-flop on these matters is certainly no help.)

In my opinion, the US will find the transition (back to a “country that produces things”) extremely painful and, perhaps, impossible. I suspect that’s why China is taking a hard line and made it clear that it will fight to the end if the US insists on imposing an unfair deal. In short, Trump has no cards vis-a-vis China.

Question 3– In your opinion, should Trump seek greater economic integration with China or continue along the current path of economic isolation, sanctions and conflict?

Hua Bin—There’s no doubt that economic cooperation is mutually beneficial and, frankly, the US could use China’s help to reindustrialize if that is the real goal. And the two economies are complimentary in many ways. The US actually runs a multi-billion surplus with China in services although the Trump regime chose to focus entirely on the trading of merchandise where it runs a structural deficit with most of the world. (Note—In 2024, the U.S. trade deficit with China was approximately $295 billion for goods alone, according to the U.S. Census Bureau. When including both goods and services, the deficit was around $263 billion, as reported by the Bureau of Economic Analysis.) The US exports far more tech, IP, financial services, business services, education, and tourism to China than the other way around. The two economies have many synergies. However, given the current US political consensus to treat China as the new bogeyman, any compromise is highly unlikely. And, even if a deal is struck, I don’t think there’s enough trust on either side to sustain an agreement for very long.

So, an economic and trade divorce is a high-probability outcome, if not immediately, then in the next 3 to 5 years. The world is likely to bifurcate into two camps with most nations trying to find a balance between China and the US.

In the long run, I believe that China has the more dynamic of the two economies and will emerge from the current trade war triumphant. In contrast, the US will find it much harder to muddle through while trying to manage plunging markets, a steadily weakening currency, and an ocean of red ink. Of course, the worst option for the United States would be a direct military confrontation with China. As I have explained in earlier articles, the US would undoubtedly lose a war with China which would greatly accelerate the pace of America’s decline. If that were to happen, the post-war international order would be kaput.

https://www.unz.com/mwhitney/chinas-tariff-smackdown/

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