Photo-Illustration: Intelligencer; Photo: Ken Ishii/Getty Images
President Trump may have paused his tariffs against American allies last week, but he only escalated hostilities against China, raising tariffs on imports from the country to 145 percent. Given America’s dependence on Chinese goods, such restrictions will hurt conglomerates and small businesses alike. And tensions between the rival superpowers aren’t likely to die down soon. Over the weekend, Trump’s bumbling commerce secretary Howard Lutnick signaled that the new exemptions Trump had made on electronics might not last long, while China, which had already leveled 125 percent tariffs on American goods, announced that it would suspend the importation of some rare minerals, which could seriously hinder U.S. car manufacturers and defense contractors, among others.
The Trump team’s strategy, to the extent there is one, has been marked by impulsiveness. But what is China thinking? To shed some light on that question, I spoke with Dan Wang, a research fellow at the Hoover History Lab at Stanford University, who has frequently written about China’s politics and trade policy.
With this trade war, there’s the political side and the financial side. And on the political side, Trump is acting like he holds all the cards with China. He wants Xi to set up a phone call with him, and Xi does not seem interested in doing that. Both of these two leaders hate seeming weak, but Trump has a long history of folding, and Xi does not. He’s known for being steadfast. So do you think there’s any incentive for Xi to blink first, or does it make more sense from his standpoint to wait out this standoff as long as it goes?
I lived in Beijing during the first trade war, all the way through the signing of the phase-one trade deal. And my sense of the Chinese leadership side is that they do not enjoy negotiating with Trump, who is remarkably erratic, often unclear with demands, and also escalates a great deal. That is just an aesthetically displeasing experience for Xi.
On the other hand, America has tremendous amounts of economic buying power, and China’s economy, which is fairly export-dependent, and manufactures a lot of goods for exports, certainly wouldn’t like it if roughly 145 percent tariffs exist on goods to one of its major export markets forever. So there is certainly some incentive to reduce the pain for a lot of Chinese companies to preserve some trading relationship, and to keep economic growth going when China’s economy hasn’t fully recovered from the COVID years.
I was struck by a quote I saw in the Times — a political scientist said that the trade war “will actually save Xi Jinping from having to take responsibility for the lack of economic growth in China. It’s a get out of jail free card for him.” Do you agree with that?
Somewhat, but I don’t think it’s such a total get out of jail free card, because Chinese who have spent much of the last five years facing really uncertain economic outlooks know that the economy wasn’t doing all that well before Trump’s tariffs. I also lived through the entirety of the Zero-COVID experience in China, when a lot of service sectors faced completely unpredictable shutdowns. During the peak of China’s success in Zero-COVID, it felt like Beijing had the virus under control when the rest of the world did not. In 2021, the politburo announced a “structural reform.” That is when it smashed a lot of internet platforms and announced major restrictions on property development — that’s also one of the main things that has made China’s economy really weak, which is a significant slowdown in property purchases as well as construction.
So I think yes, to some extent Trump’s tariffs will cause a nationalistic rallying around the flag in China, because the Politburo will pretty easily be able to portray China as being significantly bullied. On the other hand, I think people are very well aware that the economy has been fairly weak over the last five years.
Though that may also mean that China is more used to these circumstances, and is less likely to be shocked by them.
You could say that Xi has been preparing China for tremendous economic stresses since the start of his leadership in 2012. It really accelerated through the course of the first trade war. This is where you also see some more extreme language from Xi. During Zero-COVID times, Xi said that China needs to prepare for “extreme” scenarios. The Communist party typically speaks obliquely about such matters, but we can wonder what he meant. One possible, I think quite valid, interpretation is for the severing of total economic relations in the event that Beijing launches some sort of conflict against Taiwan.
And you can certainly read tremendous economic tariffs as a part of the extreme scenarios that Xi has been preparing for. He has been trying to harden the Chinese economy over the last 10 years to reduce its dependencies on a lot of Western products so that China is much more self-sufficient in terms of technology, manufactured goods, food, and energy. In a way, you could say that Xi has been preparing for severing economic ties with the U.S. and the rest of the west for longer than Trump has been preparing for this.
In your experience living there, do you think the populace goes for that kind of messaging? That they need to sacrifice possibly our own economic well-being for the greater good of China? It’s sort of similar to what some of the MAGA base is preaching now — short-term pain for supposed long-term gain.
I think MAGA’s message is short-term pain for long-term gain. And I think Beijing’s message is short-term pain and long-term pain. Over the last few days, the spokespeople from Beijing’s Foreign Ministry have posted clips of Mao saying, “So long as the Americans want to fight on in Korea, we will match them.” The Korean War is the only conflict in which Chinese troops faced off against American troops directly on the battlefield. And so this is something that they’re trotting out, that the Korean War had hundreds of thousands of losses for China right after they suffered hundreds of thousands of losses from the Japanese invasion, as well as China’s own civil war.
I think there is this sense that Chinese are really capable of suffering. They have done that during wartime, during the Great Leap Forward, during the Cultural Revolution. The future is going to be glorious, but there is going to be a lot of pain ahead. And I wonder to what extent Americans are prepared for this sort of message. The U.S. and China have a lot of trade between them, but Americans are also very much dependent on Chinese goods, Chinese production, and Chinese manufacturers in all sorts of ways.
The U.S. isn’t known for its self-sacrificing nature but Trump voters trust him to the extent that they might go along with him, for a while.
It is also a little unclear to what extent Trump voters are able to suffer economic pain. During the first trade war, prices didn’t rise all that much and didn’t contribute all that much inflation. Tariffs now are much, much higher than before, and inflation is still stuck at the higher end. During the first trade war, Beijing was pretty sophisticated about targeting exporters, congressional district by congressional district, essentially to try to make Trump lose the 2018 midterm elections. And there are certainly goods that China has a lot of leverage over. Almost the entirety of U.S. sorghum exports goes to China. The vast majority of U.S. soybean exports go to China.
And by cutting off these markets, it can deal tremendous, concentrated pain to American farmers who are a big part of Trump’s voting base. A lot of Chinese will be pretty upset about the loss of their manufacturing activity as well as higher prices on their own goods, in many cases, because of China’s own retaliation. But I think Beijing’s bet is that its populace can endure these sorts of problems much better than voters in America can.
Going back to what you said about Taiwan, which has been a preoccupation of Xi for years — do you think that this trade chaos, and further separation from the west will just make him more aggressive with the already aggressive territorial moves he’s making?
I think the tariffs certainly make the situation more dangerous, because I don’t think Beijing launching military action or blockading Taiwan is imminent. I don’t think there’s any timeline involved, because in part there are pretty significant deterrents for Xi to launch military or blockade action. One of them is that Xi would have to accept a severing of a lot of economic ties, perhaps even most economic and financial ties with the West — as we saw in the case of Russia’s invasion of Ukraine. But if the tariffs are maintained for long, this feels like the West throwing away one of the great deterrents against Beijing’s action. During peacetime, what we could be seeing is economic decoupling, such that it’s less of a deterrent for Xi to launch military action.
That doesn’t mean there’s no deterrent against military action. It is possible that the People’s Liberation army will lose, because Taiwan is a really difficult spot to invade. And it is apparently the case that Xi doesn’t fully trust the People’s Liberation army to be the fighting-competent force that he needs it to be, since it hasn’t fought a war in nearly 50 years now. And the Financial Times reported that Xi has purged the second-highest ranking military officer of the People’s Liberation army, who has a seat on the Politburo. That is a very, very high-ranking military official. If that’s true, it’s another signal that Xi doesn’t quite have complete confidence in his armed forces.
In the case of Russia, there was almost a complete cessation of economic activity with the West. Yet Russia has managed to survive, in large part because China was an economic lifeline. But if China was cut off, what would be their lifeline?
Well, China is a very, very big country. One of the things central planners in Beijing like to brag about is that it has, in its terms, a relatively complete industrial chain, which is to say that it is able to manufacture pretty much anything aside from a few categories of highest-end semiconductors and jet engines. But I think it is certainly the case that China has extremely sophisticated, and capacious manufacturing capacities. And that was something that was also made pretty apparent during Zero-COVID, when China was able to scale up production of masks, cotton swabs, and other basic medical equipment extremely quickly, in a way the U.S. wasn’t really able to get its act together on.
The value of U.S. exports of China’s exports to the U.S. is about two percent of GDP. And between a lot of rerouting and smuggling, I don’t think there will be a complete cessation of Chinese exports. So it is a problem, but it is not, in the Chinese media’s terms — the sky falling over on us.
Another point about China’s economy right now: one of the criticisms of China is that it hasn’t stimulated enough after the property bust, or firmed up consumer spending. And there is plenty of room. There are constraints around the extent to which China’s government could save its own economy, but I think this is pretty real, and pretty valid. There is scope for China to do more, and now it really must do more, because its exports are under quite a lot of pressure.
And that also includes giving people better pensions, better healthcare, better social spending generally, right?
Yes. Xi has been saying for the last couple of months, and arguably the last couple of years, that China needs to be more of a consumer-oriented economy, and these tariffs are giving Beijing the kick in the pants it needs really to be much more serious about promoting domestic consumption.
I think some Western economists have been a little confused as to why they haven’t done that before. So, if this trade war pushes them into doing it, could it supercharge the economy and actually turn out quite well in some sense?
It could. Supercharge is a strong term, perhaps.
Charge.
Charge, yes. Tepidly charge.
In the near term, could China and Europe become closer as the U.S. drifts away? The consensus seems to be probably not, because there are too many barriers between them.
Well, closer is a term of art. Donald Trump and J.D. Vance have done their very best to insult Europeans as much as they can. And the Europeans don’t love that they are being tariffed over nonsense measures. It was probably an accident of timing that the Spanish prime minister was visiting Beijing last week, but it is not an accident that a lot of European leaders will be visiting Beijing in July, which is something that they’ve announced.
So I can see how many countries will really have to weigh — do they try to access the American market, which is of course the world’s biggest consumer market, and the best trading partner for a lot of countries. And then China offers a slower-moving sort of aggression, and far less erraticness than Donald Trump does. I think it is not a very simple thing to say that all countries will either completely choose China. or completely choose the U.S. I think it is going to throw a lot of them into a lot of doubt, and maybe make them just reject both countries.
This interview has been edited for length and clarity.
