China remains resolute in the face of US tariffs, challenging the United States to engage in a comprehensive trade war that could disrupt both economies. The critical question is: which nation can endure greater pain?
Unlike the US, China does not contend with a free stock market, independent capitalists or an elected congress. This allows Beijing to withstand sustained pressure for months or years, attributing economic challenges to American antagonism.
Conversely, the US faces potential domestic pushback against President Donald Trump’s policies.
China is strategically positioning itself, wagering that the US is unprepared for a full-scale trade conflict that threatens global commerce. Beijing anticipates that America will falter in dealing with a potential market crash, rising inflation, and recession, thereby weakening Trump’s key strategy against China – economic decoupling.
President Xi Jinping has stated that the Chinese economy is “an ocean, not a pond.” At the same time, Premier Li Qiang, during a meeting with EU President Ursula von der Leyen, asserted that China is ready to weather the trade storm and will not succumb to US tariffs.
For years, China has developed a nuanced plan B, resembling North Korea’s model of self-sufficiency. Part of this strategy includes halting imports of US soybeans or sorghum – essential animal feed – and thus demonstrating readiness to forgo these commodities, at least temporarily, that some US strategists deemed vital for China.
Intricate web
Moreover, the geopolitical landscape is intricate. China apparently is sending volunteers to support Russia in the Ukraine war, thereby tightening Moscow’s ties and complicating any potential agreements between President Vladimir Putin and the US.
Chinese involvement in Ukraine provides the People’s Liberation Army (PLA) with valued combat experience, as its soldiers have not seen battle for 45 years.
This strategy is multifaceted, as the difficult decisions come with diplomatic overtures. China might support an Iranian nuclear deal, offering Trump a diplomatic victory – albeit one that might strain his relations with Israeli Prime Minister Netanyahu, who might distrust any agreement with Tehran.
Internationally, China presents a defensible position. While tariffs respond to its trade surplus, the aggressive tariff measures by the US have shifted global perceptions, allowing Beijing to claim the moral high ground.
Key questions remain: Is the US prepared to continue supporting Ukraine, given Putin’s reluctance for peace? Can it endure an inflationary recession to counter China? Beyond trade, does the US possess a long-term strategy to navigate this complex geopolitical landscape involving economic and military tensions?
Without preparation, the US faces potential humiliation and unforeseen consequences, necessitating a swift reassessment of its strategy towards China.
If Trump is not prepared, a disorderly outcome is likely. If he is, the stage is set for a prolonged and challenging trade cold war.
China is steadfast, but is the West prepared? How does the US intend to proceed? Was Trump unprepared, armed only with a carrot for a gunfight?
Domestic dynamics
Chinese domestic dynamics play a significant role in this geopolitical chess game. If I were an advisor to Xi Jinping, my career spanning 30 to 40 years would have taught me two things: to protect my position and to second-guess my superior.
Additionally, the party system inherently favors an ideological bias: siding too far left, with a conservative Leninist and anti-American approach, entails few or no penalties.
Conversely, leaning too much to the right, with liberal and pro-American perspectives, involves risks, as it aligns with the Western capitalist system – the ideological rival of the party.
What could I advise the Chinese president in discussions about managing near-confrontation with the United States? Suggesting soft, right-leaning alternatives carries numerous risks. Conversely, proposing hard, left-leaning alternatives may offer many advantages.
If my right-leaning proposal were adopted and failed, it would be deemed a failure due to perceived weakness and proximity to the enemy, potentially jeopardizing my career. Conversely, if a left-leaning proposal failed, it might still demonstrate strength and resolve for the country.
Under these conditions, an advisor is more inclined to suggest left-leaning ideas and strong measures rather than softer ones.
Moreover, I could claim credit if I were in the upper echelons and my leftist advice succeeded. If it failed and Xi were in jeopardy due to internal opposition, it might create opportunities for reshuffling power dynamics.
Mafia economics
Gideon Rachman recently described Trump as employing a mob boss approach to global markets. Unlike a mob boss, who lacks an unruly Congress, independent press, judiciary and elections, Trump, a capitalist, was elected with the support of tycoons paraded at his inauguration.
The mafia, a feudal organization, struggled to integrate into a capitalist free market system. Its primary tactic involves dividing the territory, levying taxes on businesses and imposing feudal criteria on a market-based system. When business expands, territory and taxes may become burdens rather than yielding significant returns. Capitalism works better than feudalism, although capitalists are always tempted to cut corners, corner the market and turn themselves into feudal lords.
America’s dilemma lies in having long commanded the capitalist system, overseeing all economic activities. Attempting to cut corners and overhaul the market without enough decisiveness and stamina risks losing systemic control, potentially transferring it to other hands, like China’s.
China has recently introduced a new financial exchange system with Southeast Asian and Middle Eastern countries as an alternative to SWIFT. For America, the real challenge is re-industrializing and managing debt. Some tariffs may serve a function, but a blanket requirement that countries negotiate with the US is misguided, as markets operate independently of any capitalist nation’s control.
The strength of Wall Street serves the US well unless any would-be master misunderstands markets. The US can impose a massive financial and commercial overhaul, but it needs to have the consensus and the strategy to sustain prolonged pain. Without it, we may be in the twilight when the old order is gone, but the new is still to come.
An Italian analyst and commentator on politics with over 30 years of experience in China and Asia, Francesco Sisci is director of the Appia Institute, which originally published this article. It is republished with permission.
