Losing A War Before It Started

Trump's Trade War With China Is A Strategic Catastrophe In The Making

Hi All,

The best single argument that I can make that Trump is not acting like a Russian agent is that he is being too blatant in his action. Agents, or so we are told, should be inconspicuous and not draw too much attention to themselves. They normally do not want to openly do the work of their controllers, lest they blow their cover. Beyond this, however, what we see in Trump is a persistent, almost pathological, drive to weaken the USA internally and externally. Any Russian agent would be hard pressed to do more. Internally he is disregarding unanimous decisions of the Supreme Court (which if allowed to stand will destroy the whole concept of the rule of law in the USA), has hobbled Congress by compelling it to give up its powers, and is trying to break the independence of America’s press and universities. Far from being “conservative” this is the most radical set of destructive policies he could follow—and it is very hard to see how the genies that he is releasing will ever be put back in their bottles

In terms of international relations he is being just a destructive to America’s world position. Under the guise of making America “great again”, he has pursued a set of policies that is weakening America’s influence, destroying the relationships on which the American century was based, and strengthening those countries which see themselves as America’s adversaries.

The trade war that he has unleashed against China is arguably the best example of this. Trump has started his trade war without any preparation, against a target that can almost certainly outlast him, while deliberately antagonizing states that would be crucial to giving the US any chance of emerging victorious. He has most probably lost this war before it started.

A Conflict Which Trump Has Seemingly Set Out To Lose

I published a piece in The Atlantic yesterday talking about one of these points—how Trump is forcing what should be US partners into China’s economic orbit. Here is a gift link if you want to take a look. As a bonus for paying subscribers, I will include the whole first draft of the piece (much longer than the published version) at the end of this post—so you can experience the true vitriol. The Atlantic always makes me sound more statesmanlike than I really am.

Here is why this trade war is such a failure already.

The US Did Not Prepare

This trade war is a microcosm of Trump’s incompetence. If you are going to have a trade war with a large and powerful economic rival, you should at least take the prudent step of checking your own vulnerabilities and trying to mitigate them. Yes the Chinese run a large trade surplus with the USA, and that means that if trade is cut off, other sources for these goods will need to be found. In some cases, this is nigh impossible.

The most glaring of these is vital rare earth metals of the type that are only being mined and exported in large amounts from China. China is now stopping the shipping of these metals to the USA, which could have a terribly destructive impact on US industry. In this specific case, China is using a new regulatory process to block exports of rare earth metals that are vital to advanced magnets to the USA. Such magnets are crucial to advanced manufacture as follows.

The heavy rare earth metals put under export suspension by China are used in magnets-- essential for many kinds of electric motors used in the manufacturing of electric cars, drones, robots, missiles and spacecraft and gasoline-powered cars.

These metals are required for the manufacturing of jet engines, lasers, car headlights and certain spark plugs and capacitors, which are electrical components of the computer chips that power artificial intelligence servers and smartphones.

One would have though the USA would have, in preparation for Trump’s trade wars, at least taken the basic precautionary step of stockpiling such metals, or exploring alternate sources—but that seems not to have been the case. If so, it has been a catastrophic oversight.

China Can Probably Ride This Out Better Than The USA

We hear a great deal about the US trade deficit with China, and how that will bring China to its knees. First off—US trade with China is a smaller part of the Chinese economy than you would think listening to Trump. Lets start with the figures given by the US trade commission.

U.S. total goods trade with China were an estimated $582.4 billion in 2024. U.S. goods exports to China in 2024 were $143.5 billion, down 2.9 percent ($4.2 billion) from 2023. U.S. goods imports from China in 2024 totalled $438.9 billion, up 2.8 percent ($12.1 billion) from 2023. The U.S. goods trade deficit with China was $295.4 billion in 2024, a 5.8 percent increase ($16.3 billion) over 2023.

So overall, China sends $438.9 billion of goods to the USA annually. That represents just over 2 percent of China’s overall economic output. China’s GDP is approximately $18.8 trillion (2.3% to be more exact). By PPP calculation it would be far smaller than even this figure.

And of course not all of this trade will simply disappear because of Trump’s tariffs. Some of the most important has been exempted from the extra tariffs. If you had not heard, the Trump administration, so as to not cripple Apple, one of the most important US companies in the world, exempted smartphones and some other computers from the tariffs. Even with Trump seeming to prevaricate on this yesterday, there is no indication that Trump is willing to explode the cost of a new Iphone. Its not easy to say what percentage of China’s trade with the US is in such items will be exempt in the end. Overall electronic goods accounted for over $125 billion of China’s trade with the USA in 2023, so it will be considerable.

And this is just the start. The Chinese can get around some of the other tariffs by shipping through other countries, and with their expertise in supply chains that should be possible at a modest cost. Moreover, the Chinese will undoubtedly try to find other markets for these goods.

In other words, the total hit to the Chinese economy might be between 1-2% of output—and the Chinese can ride this out for a few years. They have a dictatorial state, with the ability to both raise money enough to cover the costs and clamp down on any dissent and can now try and find alternative markets.

And some of their trade, even with the high tariffs, will continue with the USA.

The USA, on the other hand, was already entering an economic slowdown because of Trump’s policies. At the same time, the US budget deficit is exploding. It was just reported that the US deficit “has grown to more than $1.3 trillion in the first half of the 2025 fiscal year — the second highest six-month deficit on record.” So Trump is starting a trade war with China which will raise prices in the US at exactly the time that the US has no leeway for increased spending, and the economy is slowing.

The Chinese probably cant believe their luck.

As such, I would not bet against the Chinese outlasting the US—all they have to do is make it to the 2026 midterms, which will (if allowed to happen freely) almost certainly be a catastrophe for the GOP.

US Allies Are Now Incentivized to Trade With China

This was one of the main points in my Atlantic Article. The US, by threatening almost every state in East and South Asia with crippling tariffs has destroyed the notion that the US is a reliable partner. And Trump simply postponing these for 90-days while threatening to bring them back, is hardly an incentive for these states to work with the USA.

Already we are seeing a number of states that either are or wanted to be strategic partners with the USA, cooperating with China more closely. Vietnam is a fascinating example of this. The Vietnamese share a border with China and has constant disputes with China over Chinese claims in the South China Sea. The US and Vietnam have for years, on the other hand, been growing closer, even staging military visits. Here is an excellent CSIS report on their relationship.

However Vietnam was also subject to even harsher tariffs than China under Trump’s original plan. And guess what, almost immediately after Trump’s announcement, China and Vietnam started working more closely in aircraft development, etc.

Overall, Asian central banks are talking more together about how to respond to US tariffs. According to a statement from China's central bank last Friday, “finance and central bank officials from China, Japan, South Korea, and other regional countries met…and discussed the impact of US tariffs on the global and regional macroeconomic situation.”

Such cooperation will only grow the more mercurial the USA seems. Even if these states reach temporary trade deals with the USA, these will be viewed (as they should) as entirely contingent and down to the whims of the president. Investment flows will adjust—and China will benefit.

Conclusion and First Draft Of The Atlantic Piece