Trumps Handelskrieg eskaliert, China hält seinen Boden

The U.S.-China trade conflict has entered a more confrontational phase, with heavy tariffs reflecting deeper strategic rivalry. Neither side shows signs of backing down, turning economic tools into geopolitical weapons. This escalation risks long-term disruption to global trade and power dynamics.

China coould use some consumption boosting to offset the revenue lost by exports to the US.

I think it’s a mistake to evaluate this based on which country ’needs‘ the other’s imports more. Forgetting for a moment the imbalance of the respective ’needs‘ (US will face the largest deficits in consumer electronics, China will face issues with *food*) the real meat is the larger economic effects of the nations‘ respective policies on their domestic populations. And this too is filtered by the political systems which both incentivize and *constrain* responses.

POTUS has a lot of latitude to act, but because he must maintain popularity to ensure he maintains that latitude by succeeding in midterm elections, and preferably set up a path for continuation of his leadership by a member of his party (likely his VP). My rough guess as to Trump’s plans right now are: corral Congress to pass massive tax cut benefitting the corporate class of America by arguing the (consumer paid) tariffs will offset the costs. If he can get a rate cut from the fed in there then most consumers will likely feel better off to help him maintain at least one chamber in the midterms.

Xi, of course, does not have to worry about elections. But in a way that’s worse because he has no clear timeline beyond the one set by Trump’s aspirations for when the pain may potentially end. And is say ‚pain‘ because China was *not* in a good position before the trade war. Demographic crises, faltering economy, and plenty of tensions within and without their sphere of influence in Asia. I think it’s fair to assess China’s population is giving Xi a bit of ‚flag rally‘ boost, but their morale won’t last long if Xi can offer nothing but factory closure (inevitable if tariffs stand) and an ever increasing lengthening path towards the mythical middle class life.

But can Xi back down? It may be that he cannot. Trump, as we’ve already seen, has no qualms about reversing himself, and indeed doesn’t really seem to pay much of a political cost for doing so with his base, another wonky aspect of American politics in recent years. But Xi? He faces the rules for dictators–show weakness and you not only have trouble externally, but internally as those vying for the king’s seat become emboldened to take their shot.

To make a long post short: Trump’s worst case scenario regarding China are that he has to walk back the tariffs. He can do that anytime from now until, realistically, a few weeks before the midterms, depending on how things go. He may pay a political price that will go no farther than losing the midterms and (being *extremely unrealistic*) an unsuccessful impeachment attempt. Xi’s worst case: domestic turmoil fomented by an inability to replace their largest buyer of goods coupled with a harsh path out of the slump they’ve been in for years, leading to such a loss of favor that he potentially gets killed. With the stakes organized like this… I wouldn’t want to be Xi right now.