Josef Wolpert
Tariff Wars: The Economic Battle of Superpowers
The United States and China traded 758.4 billion dollars in 2022 alone, according to figures from the Office of the United States Trade Representative website. Some of China’s most heavily exported goods to this partner are cell phones, computers, lithium batteries, monitors, and transmitters. The U.S. is currently China’s largest trading partner. Many sectors in the U.S. depend heavily on Chinese goods, such as our machinery and mechanical appliance sectors, which import about 50% of their commodities from China.
Due to the large amount of money and goods transferred between these economic powerhouses, China is now the biggest threat to the United State’s 2025 economic foreign policy goals as they change, moving into the next administration. The newly re-elected U.S. President Donald Trump promises to implement 60% tariffs on all Chinese imports. These tariffs will greatly impact the U.S. and Chinese economies, which are currently the two largest and most influential in the world.
While Trump implemented tariffs on China during his last presidency, these tariffs in 2016-2020 were only around 7.5-25%, depending on the traded goods and year. The newer and stricter iterations of these tariffs Trump promises in 2025 will likely have a much greater effect on an already slowing Chinese economy. Due to growing levels of debt and failing real estate markets, the Chinese economy has been taking some very strong hits in recent years. The addition of 60% tariffs from its number one trading partner could damage China’s economy even more severely.
However, while seriously damaging the Chinese economy, these tariffs will certainly and significantly hurt the U.S. economy while increasing costs in American domestic markets. According to the Peterson Institute for International Economics, the tariffs proposed by Trump would increase the cost of living for the average American household by 2-4%. This same study also suggests that the tariffs implemented in Trump’s 2017 trade war on China did not lower prices in the U.S. economy and instead took money out of the average American’s pockets. These same studies concur that revamping and raising these tariffs in 2025 will have a similar effect.
However, the major hope for these potential 2025 tariffs is that despite the initial harm they will almost certainly do to the American economy, they may eventually increase American domestic production, decreasing our dependence on Chinese goods and services. This would be a good outcome as the policy goal of implementing these tariffs has been achieved. They would have successfully reduced Chinese control over American markets and brought back domestic production in the U.S., creating more jobs and generating more money in the U.S. economy. Additionally, the government that implements these tariffs receives large amounts of money from the import fees. When asked what he would do with the revenue from these tariffs, president-elect Donald Trump responded, “Lower taxes and paying off debt.”
According to CNBC figures, these tariffs are estimated to reduce China’s exports by $200 billion, dragging GDP by 1%. Given China’s already slowing economy, many of Trump’s supporters hope these measures—though damaging in the short term, especially for consumers—might finally end the Chinese economic machine and solidify the U.S. as the world’s economic leader again.
The other hope for these tariffs is that they stir growth and prompt the return of domestic industry. Economists have initially projected increases in domestic industry, and several studies have shown that previous tariffs allowed American businesses to start competing with Chinese businesses, prompting American consumers to switch to products (especially machinery) made in America. This is why, with isolationism’s rising popularity in the U.S., many Americans see Trump’s plan for economic independence and the return of domestic production as a source of pride.
Despite the initial negative effect that Trump’s tariff policies would have on U.S. costs of living, especially in the case of machinery and mechanical appliances, the policies supporters believe that these policies will facilitate the downfall of China’s economy and lead to greater domestic production in our country, which in the long run, will be a huge benefit to the U.S. and its citizens.
Even with this, the biggest uncertainty in the next year is the Chinese response to this economic change and how it might affect security in the South China Sea. Since Trump’s re-election, the Chinese government has begun to prepare for these massive tariffs. It has proposed increasing trade with the global south by introducing a regime of zero tariffs for developing countries with diplomatic relations with Beijing. This plan will allow China to increase trade with 33 of the least-developed countries in the world.
China has also started to plan the introduction of a new stimulus measure to help counter these tariffs and battle massive amounts of “hidden debt.” This stimulus plan will see the Chinese government spend the equivalent of 1.4 trillion dollars in government bonds over the next five years to help bail out local governments. However, we do not yet know the effectiveness of such Chinese counters and whether they will be enough to keep the Chinese economy afloat.
If Chinese strategies to counter these tariffs are ineffective, the Chinese government might resort to something drastic. Taiwan produces over 60% of the world’s semiconductors and over 90% of the most advanced ones. Today, China accounts for nearly three-quarters of the global demand for semiconductors, and it only produces about 15% of the world’s output, most of which is lower-end commodity chips. Because of these economic reasons and a plethora of significant ideological reasons, China has wanted (and threatened) to “unify” both countries under the CCP. Despite being an extremely risky move, if provoked by economic hardships imposed by foreign sanctions, the CCP might resort to an invasion of Taiwan. However, to counter this threat, Trump has said that should Taiwan come under attack or even a blockade, he would increase the tariffs to 150-200% on all Chinese goods.
This possibility is especially worrying, as the security situation in the South China Sea is already tense and complicated. Many experts believe that if China does not peacefully unify by 2030, the Chinese military will invade the island and forcefully unify it with the mainland. This is yet another reason a potential tariff war in 2025 and the further deterioration of the Chinese economy could seriously affect security in the region.
These new economic policies are something of a double-edged sword, and it has the U.S. and the rest of the world torn. On one side, the U.S. can keep trading with China, using liberal economic policies and relying on the free interrupted flow of the world market to keep the U.S. an economic superpower. On the other hand, America has the ability to greatly damage the Chinese economy and power of influence, with a negative effect on American citizens in the short term.
Doing difficult things right now is necessary to accomplish greater things in the future. So, despite the initial increase in the costs of living for many Americans, these policies could help America deal a significant blow to one of its biggest rivals. The damage dealt to the CCP as a result would be not only an enormous economic, ideological, and political victory for the U.S. but also a spark of hope for all of the oppressed minorities in China, from the Uyghurs in Tibet to the people of Hong Kong.
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