Trump's Trade War is Doomed to Fail

The world is shifting faster than they want you to notice. Promises of change, threats of chaos—behind it all, there’s a pattern they don’t want you to see. Let’s break it down.

Republican candidate Donald Trump won the U.S. presidential election this month and became the 47th president-elect of the United States.

Trump is known for his sharp words and shocking remarks. He is good at exaggerating creating momentum and using his preemptive attitude to give his opponents a crushing blow.

For example, Trump boasted during the election that he would "end the Russia-Ukraine war in one day." This boast has almost become a bubble as Biden lifted restrictions on Ukraine's long-range missiles. It is conceivable that as the Russia-Ukraine war escalates violently unless Trump directly abandons Ukraine, the Russia-Ukraine war will continue after Trump takes office.

Because the current situation of the Russia-Ukraine war is already very obvious, the Russian army's advantage in eastern Ukraine has become increasingly obvious over time. The Russian army is winning victory after victory in eastern Ukraine, while the Ukrainian army is retreating step by step. The Ukrainian army is particularly facing a serious dilemma of insufficient manpower, which is also the fundamental reason why the Ukrainian army is difficult to win.

As the situation on the Russian-Ukrainian battlefield begins to reverse in Russia's favor, if Trump wants to end the Russian-Ukrainian war, he must release more benefits to Russia so that President Putin can choose to end the war. Such benefits may include but are not limited to Ukraine's inability to join NATO and Ukraine's need to give up the four eastern Ukrainian states and Crimea.

As the Russian army advances further, Trump will need to release more benefits to Russia, not less. Therefore, if Trump wants to end the Russian-Ukrainian war "within one day," there is only one way, and that is to meet all of Russia's requirements. Otherwise, Trump's desire to end the Russian-Ukrainian war is basically a delusion.

In addition to making big promises about ending the Russia-Ukraine war, Trump also declared that he would "impose a 60% tariff on goods from China." Unfortunately, this remains an unrealistic fantasy for Mr. Trump.

Regarding Trump's plan to impose additional tariffs on Chinese goods, JPMorgan Chase, a giant on Wall Street, made a detailed estimate of the situation.

They assumed that Trump would impose half the tariffs on China, that is, 30%, as a premise, and analyzed in detail the problems that the US economy would face:

• The US GDP growth rate has fallen by 0.3%-0.6% since the imposed tariffs.

• The inflation rate in the United States will rise by 1.5%-2%, as a result, the US CPI will rise to 4%, 5%, or even more.

• The yield on the 10-year U.S. Treasury bond will soar to 5%-6%. With such a high Treasury yield, both the U.S. stock and bond markets face huge risks.

This is the case when Trump imposes a 30% tariff. If Trump really raises the tariff to 60%, then we can double the figure estimated by JPMorgan Chase above. If so, the US economy, especially the US stock market, may be at risk of collapse.

We must be clear that all the wealth of Americans is in the stock market. If the U.S. stock market collapses, it will be the worst economic disaster in the United States. Many Americans will lose all their money, companies and banks will go bankrupt, and countless people will lose their jobs. In this case, Trump and the Republican Party may suffer a crushing defeat in the next election.

At the same time, Wall Street in the United States will not allow Trump to impose such high tariffs on China, because if there is a problem with the U.S. stock market, it will also be detrimental to their interests. So Trump’s 60% tariff can basically be regarded as empty talk.

Why? Because the United States today has long lacked the manufacturing capacity to create wealth, which is the most fundamental reason why the United States cannot afford to lose China's cheap goods.

Due to the squeezing effect of the overdeveloped manufacturing industry in the United States on the real industry, a large number of people go to the financial market to speculate in stocks rather than create real products and services. This has forced the United States to import a large amount of cheap goods from China in order to maintain the current low inflation trend.

If the United States imposes a 30% or even higher tariff on China, then inflation in the United States will soar to an unimaginable level. In addition, the United States' imposition of tariffs on China may force China to abandon the dollar settlement, which is an unimaginable fatal blow to the United States.

The United States, which has lost cheap Chinese products, will have to endure high inflation on the one hand and face the risk of losing the dollar hegemony on the other. So can the United States still do this? Of course not.

This is an important reason why Trump cannot impose such high tariffs on China.

In fact, the reason why Trump cannot impose such tariffs on China is basically the same as the reason why the EU cannot impose tariffs on China. This is because neither the EU nor the US has its own industrial manufacturing capabilities, and they can only rely on products made in China.

The situation faced by the EU is even more serious. If the EU rejects Chinese products and offends China, it will first face severe retaliation from China on EU imports of agricultural products. Secondly, if the EU offends China, it may push China to the side of Russia. If China provides a large amount of military equipment to Russia, then Europe's security may be threatened.

The EU has been accusing Chinese products of "overcapacity." If China turns its strong industrial manufacturing capacity to military products, will there still be "overcapacity"? Of course not, because military products have never had the problem of "overcapacity," only the problem of "insufficient capacity." It is okay to fire 10,000-100,000 rounds of artillery shells a day.

We can say that if China fully supports Russia, then the Russian army will be able to fight to Paris or even London. That will be a nightmare for Europe.

What's more serious is that the EU is also facing a trade war with the United States. Trump threatens to impose a 10% tariff on EU products and requires the EU to pay more money to help the United States "share" military expenses. If the EU offends China in this case, then the EU will face a double attack from China and the United States, and the EU economy will completely collapse, which is very unfavorable to the EU.

This is an important reason why the EU dare not impose any tariffs on Chinese products. Facts have also proved our judgment. China and the EU are about to reach an agreement on tariff issues, and the EU will no longer impose any additional tariffs on any Chinese products.

The same is true for Trump. His so-called "60% tariff increase" is just a bargaining chip to force China to make concessions, not something Trump really dares to do. If Trump really does this, then the one who will really fall may not be China, but the United States.

Trump started a trade war with China in 2018. Although direct trade between China and the United States has declined, trade from third countries through the United States has increased year by year. At the same time, China's trade surplus has increased year by year and has now exceeded 1 trillion US dollars.

This fully shows that Trump's trade war with China has failed from the beginning. The economies of China and the United States have been integrated, and it is basically impossible to decouple.

When the Sino-US trade war started in 2018, the trade volume between China and the United States was US$633.5 billion. After six years of the trade war, the trade volume between China and the United States increased by 4.9% to US$664.4 billion in 2023.

The trade surplus between China and the United States increased from US$323.3 billion when the trade war started in 2018 to US$336.1 billion in 2023, an increase of 4%.

So we can say that Trump has already lost Trade War 1.0, so he will lose Trade War 2.0 as well. This is an inevitable fact.

Trump's trade war with China was originally intended to bring manufacturing back to the United States, but as we have discussed before, the root cause of the US economy lies in the out-of-control US fiscal deficit, the Federal Reserve's undisciplined money issuance, and the strong US financial industry's squeeze on the manufacturing industry. The trade war with China did not fundamentally solve the problem, so it is naturally impossible to play a corresponding role.

This was the case in 2018 and it will be the same in 2025. China's rise is unstoppable.