Donald Trump’s Gift to China
The largest beneficiary of America’s tariff-induced meltdown has been China—which has used past Western crises to stake out maximalist positions in international affairs.
On Friday afternoon, the White House circulated a statement claiming that President Donald Trump had “unleashe[d] economic prosperity” by imposing wide-ranging tariffs on dozens of America’s trading partners. The administration described the tariffs as a “bold plan for reciprocal trade,” stressing that the aim was to ensure fair trade and to “reverse the decades of globalization that has decimated our industrial base.” Whether or not this long-term effort is achieved, in the short run the tariffs have been ruinous: over the past two days of trading, the S&P 500 has lost around one-tenth of its value, and an estimated $5 trillion has dissolved into thin air. Further declines are possible in the days to come.
As U.S. markets react to Trump’s tariffs, the rest of the world is reacting as well—and overwhelmingly in ways that do not favor America’s interests. Faced with the prospect of high tariff barriers, Washington’s traditional trading partners have threatened to institute retaliatory barriers of their own, slowing down international trade and making both countries worse off. More significantly, in order to counteract the effects of these tariffs and the accompanying drop in trade, they are turning to third countries to create alternative supply chains, effectively cutting America—currently the world’s single largest importer, though still representing only 15% of global imports—out of international commerce. Canada, long reliant on trade with the United States, has vowed retaliation and sent delegations to the European Union to seek out new partnerships there. The nations of Southeast Asia, faced with a baseline tariff from the United States, have resolved to trade more with each other. A similar story is playing out in Latin America and Mexico, which was spared the brunt of Trump’s tariffs—for now.
Yet perhaps the most remarkable response has come from Japan and South Korea, America’s two oldest and most reliable allies in the Indo-Pacific. Faced with the prospect of a flat double-digit tariff rate for all exports to the United States—25% for South Korea, 24% for Japan—the two countries’ representatives met with their counterparts in China and reportedly discussed a joint approach to Trump’s tariffs during a previously-scheduled economic dialogue meeting, according to Chinese sources. Japan has denied that account of the meeting, and a South Korean statement described the report as “somewhat exaggerated.” The details will probably never be known in full. Yet such a meeting, if it took place, would imply that Seoul and Tokyo were interested in political collaboration with Beijing against Washington—a step that would have been unthinkable before the onset of the second Trump term. The three countries’ representatives were already slated to discuss a trilateral free trade agreement; it is impossible to imagine the topic of the American tariffs did not come up.
In one sense, the reports of this meeting should come as no surprise. Japan and South Korea already have considerably more bilateral trade with China than with the United States. And it is a basic principle of human nature that abandoning friends will cause them to look elsewhere for new friends. Yet to see the dramatic negative consequences of Trump’s tariff policy playing out in real time is jarring all the same. Far from pulling a “reverse Kissinger”—splitting Russia from China, a noble though unlikely foreign policy goal—the president appears to be pursuing a “reverse Truman,” splintering the United States from the network of foreign allies it cultivated in the postwar era and signaling to those erstwhile allies that they may find a more reliable partner in Beijing.
For its part, Beijing appears to be delighted by this sequence of events. Of course, China has also been targeted by tariffs, and its government has pledged targeted retaliation—a prospect that spells danger for certain American industries dependent on the Chinese market. Yet if China is suffering from Trump’s policies, its leadership seems content in the belief that the United States is suffering far worse. The state-run Global Times newspaper, well-known for its vitriolic attacks on the American political system, has speculated that Trump’s tariffs would primarily hurt the United States. It has also praised Beijing’s surprising new relationship with Tokyo and Seoul, implying that a decoupling with the United States is inevitable: “There is a growing perception that US strategies prioritize countering China over building proper stability in Asia. While America positions itself as the defender of the ‘free world,’ it offers limited solutions to the region’s pressing economic change.”
Reports of America’s demise on the international stage are probably exaggerated. But Beijing’s reaction illustrates a second feature of this drama. If the American crisis endures—if the markets continue to decline, the Western world tips into recession, and the longstanding ties between the United States and its foreign allies fray past the point of return—there is no reason to expect that China will not take advantage of the situation for its own territorial purposes. Indeed, it has a clear historical precedent for linking its regional expansion activities to Western economic weakness: the Great Recession, the Western world’s last major economic crisis, lined up precisely with the last major sea change in Chinese foreign policy.
From the end of Mao’s era until the beginning of the 2008 financial crisis, China maintained a low profile in international affairs—perhaps best exemplified by Chinese paramount leader Deng Xiaoping’s aphorism, “Hide your strength, bide your time.” During Deng’s leadership (1978-1989), and the ensuing premierships of Jiang Zemin (1989-2002) and, partially, Hu Jintao (2002-2012), Beijing played a surprisingly minimal role on the world stage. In its foreign relations, it downplayed contentious political issues such as Taiwan, sought investment on favorable terms, fostered trade relations with the developing world, and generally acted in ways conducive to world order and inoffensive to the United States. At the same time, its economic boom propelled millions of Chinese out of poverty, delivering critical legitimacy to the Chinese Communist Party. The Great Recession passed China by with scarcely a whisper; while the Western world suffered, Beijing regularly posted double-digit growth rates.
In retrospect, China’s experience during the financial crisis marked the true end of the Deng era. Beijing saw the 2008 crisis as a moment of great promise, and a sign of the decline of the Western world. It is no coincidence that following this crisis, Beijing’s territorial ambitions—both within China proper and toward its neighbors—began operationalizing to physical action. In May 2009, China circulated a note in the United Nations laying claim to all the South China Sea within its now-ubiquitous “nine-dash line”—dramatically raising the stakes for geopolitical competition in the Indo-Pacific and laying the ground for a dispute with Vietnam, the Philippines, and other Southeast Asian countries. In 2012, it occupied the Scarborough Shoal off the coast of the Philippines, touching off a long-running hostility between Beijing and Manila. In 2013, it began to build artificial islands atop reefs in the Spratly Islands, eventually placing airstrips and missile emplacements on them. Later in the year, it declared an “air defense identification zone” over parts of the East China Sea, notably including the Japanese-owned but disputed Senkaku Islands (Diaoyu Islands). And in 2014, it declared “comprehensive jurisdiction” over Hong Kong—a blatant violation of the principle of “One Country, Two Systems” governing the territory since the 1997 handover—and crushed the ensuing protests. Behind each of these moves was Beijing’s cynical calculation that it would not be stopped, either by a Western world still reeling from the financial collapse or an Obama administration that still sought positive economic and political relations with China and was willing to overlook Chinese misbehavior in pursuit of those goals.
Indeed, China’s drumbeat of hostile activity only slowed in the mid-2010s after Washington began to impose consequences on Beijing for its aggressive behavior. After Donald Trump first took office in 2017, he dramatically expanded the U.S. presence in the Indo-Pacific and initiated new diplomatic projects in the region—most notably the “Quad” partnership between America, Japan, Australia, and India. While Trump and successor Joe Biden had virtually nothing in common in domestic affairs, the latter continued Trump’s successful Indo-Pacific policy, further strengthening the Quad and promoting positive relations between Japan and South Korea. Each of these moves was highly detrimental to Chinese ambitions in the Indo-Pacific, and led to furious outbursts from Beijing. They also had bipartisan support in Congress and among American voters, and until now, there was little doubt that Trump’s second term strategy would continue to build on this successful trend.
But Trump’s spectacular own-goal on tariff policy appears to have changed this. And as Xi Jinping regards the international order today, one must wonder if he regards it the same way his predecessor Hu regarded it in 2008: brittle, failing, and unable to prevent China from pursuing its territorial ambitions.
Xi is a well-known skeptic of the Western free trade model. Like Trump, he understands that a nation’s industrial strength is a source of its power, and this strength is more important than absolute free trade. But unlike Trump, he has spent years carefully laying the groundwork for an alternative order—promoting a “dual circulation” economic model in which domestic supply and demand are tied to one another, giving the Chinese economy a buffer against external shocks. Xi’s views appear to have been decisively vindicated by Trump’s actions, and China is well-positioned to ride out his next moves.
What should America do in response? First, it should send a clear signal to Beijing that it will react firmly against further regional aggression—be it exercises around Taiwan, coast guard clashes with Vietnam or the Philippines, or further steps to fortify the Indo-Pacific. But beyond this, Washington must take steps to outcompete Beijing economically. This is no mean feat, considering the two countries’ relative populations and standards of living.
Fortunately, the “dual circulation” model has a weakness. It is stable, but inherently limited for the same reason that all autarkic economic models are. If the Trump administration truly wishes to outcompete China in the years ahead, its greatest asset, somewhat ironically, will be foreign trade. Tariffs to promote an American defense-industrial base, even from competition from allies, may be necessary for national security reasons. But blanket tariffs on all foreign goods, out of a sense of injustice at America’s mammoth trade deficits, are misguided.
When the United States is weak, China is strong. As they are conceived, Trump’s tariffs are weakening the United States, both in China’s perception and in reality. He should find a way out of them.
Trevor Filseth is a managing editor at The National Interest.
Image: Shutterstock / 360b.