Why America will lose tariff war against China

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OPINION

By Nnanda Kizito Sseruwagi

It is impossible to make any assessment of economic growth worldwide without coming face to face with the contribution of China to any country’s economic growth. But America is also the world’s largest developed country. It is impossible to point at any nook or crevice of the world and not find American capital or financing doing something. Because of this, a tariff war between the world’s largest developing country, China, and the world’s largest developed country, the USA, would have effects resonating with every country in the world. They are two elephants. We are grass.

When Deng Xiaoping succeeded Hua Guofeng and opened up China to international trade in 1979, the volume of trade between China and the USA stood at a paltry $2.5b. Recent figures for 2024 show that there has been an increase in that trade volume to $688.3b! This expansion of trade between the two countries can never be said to have benefited only one country. I think Trump is blinded by sheer prejudice in the belief that China is ripping off America in their balance of trade.

America has increasingly grown to be a protectionist, yet it is the birthplace of free-market Mujahideens like Milton Friedman. It has in total imposed over $500b of tariffs against China between 2018 and now. Given China’s high resolve to peacefully settle all kinds of conflicts, it invited the US into several rounds of trade and economic negotiations to stabilize the two countries’ bilateral trade relations over the years, to no material success.

America, in its typical coercive American style, has recently passed the “America First Trade Policy Memorandum”, in which it targeted China with a number of tariffs in complete usurpation of the principles of the market economy and multilateralism which henceforth were indistinguishable from America itself – American being the beacon of free-trade values.

The entire global supply chain is disrupted when America imposes such arbitrary trade restrictions on China. So, it is no longer just China’s problem; we all must be concerned. It is even false for Trump to claim China is ripping off the US, In fact, ever since the Bretton Woods system was established in 1944, it has been the US ripping off the entire world because the American dollar was made the world's primary reserve currency, pegged to gold and used as the standard for international trade and foreign exchange – a position that Americana has heedlessly exploited to its selfish benefit.

It is this economic history that has given the US significant economic leverage over other countries which have to hold dollars to stabilize their currencies, yet the US can simply print dollars at no cost to settle its foreign debts and pay for material goods in international trade. America’s biggest export today is capital because it can literally print money to cover its budget deficits, effectively exporting inflation while other countries bear the cost of maintaining dollar reserves.

I do not understand why Trump or his economic and trade policy advisers seem to think that for America to be succeeding and something, its rivals must lose. It should be obvious to anyone that cooperation between China and the US does benefit both sides. And the opposite is true.

As already explained above, the volume of trade between the two countries has grown 275 times since 1979, reaching $688.28b in 2024.

It is difficult, if not impossible, to find any ratio of trade relations between the two nations where the US does not benefit more than China. And this is why I argue that America stands to lose the tariff war. Whereas the US is China's largest goods export destination, it is also the second-largest source of imports.

Therefore, if China tits for tat for every increment of tariffs America makes, American citizens will either pay much more for basic goods or even fail to afford them at all. China is also the US's third-largest export destination. This means American companies will find it crazy expensive to export goods and services to one of their largest markets. Besides, America’s exports to China have been increasing faster than their exports to any other country in the world, because of China’s purchasing power.

According to UN figures, in 2024, America exported $143.55b worth of goods to China, representing a 648.4 per cent increase from $19.18b in 2001. Additionally, this exceeded its overall export growth of 183.1 per cent during the same period. China is also the largest export market for US soybeans and cotton, the second-largest export market for integrated circuits and coal, and the third-largest export market for medical devices, liquefied petroleum gas, and automobiles. 

According to the US Department of Commerce (USDOC), the American service industry is also highly dependent on the two-way trade in services with China. Between 2001 and 2023, China-US services trade expanded over seven times from $8.95b to $66.86i. In 2023 alone, the US registered a surplus of $26.57b in service trade with China, highlighting a significant advantage for the US.

Into the bargain, in 2022, American-owned enterprises in China earned total revenue worth $490.52b, significantly exceeding the $78.64b in sales revenue generated by Chinese-owned enterprises in the US The gap of $411.88b critically underscores the profound advantage of American enterprises in international trade, even against a strong economy like China. The number of trade areas which can be cited as examples to show how America benefits more than China under free trade is countless. The amounts involved are enormous. Doesn’t Trump know this?

It would therefore be foolhardy for Trump to brazenly sideline China economically by imposing crazy tariffs. Over 10 American insurance companies have established subsidiaries in China. American financial institutions, such as Goldman Sachs, American Express, Bank of America, and MetLife, have all invested substantially in Chinese financial institutions. Trump seems to either lack the knowledge or arbitrarily disregard the fact that the trade balance between China and the US is not a malicious creation of China. Instead, it is an independent result of structural factors in the US economy and the natural comparative advantages and international division of labour between it and China.

The writer is a senior research fellow at the Development Watch Centre