In short, the U.S. economy will suffer enormously in a large-scale trade war with China, which the current levels of Trump-imposed tariffs, at more than 100 percent, surely constitute if left in place. In fact, the U.S. economy will suffer more than the Chinese economy will, and the suffering will only increase if the United States escalates. The Trump administration may think it’s acting tough, but it’s in fact putting the U.S. economy at the mercy of Chinese escalation.
The United States will face shortages of critical inputs ranging from basic ingredients of most pharmaceuticals to inexpensive semiconductors used in cars and home appliances to critical minerals for industrial processes including weapons production. The supply shock from drastically reducing or zeroing out imports from China, as Trump purports to want to achieve, would mean stagflation, the macroeconomic nightmare seen in the 1970s and during the COVID pandemic, when the economy shrank and inflation rose simultaneously. In such a situation, which may be closer at hand than many think, the Federal Reserve and fiscal policymakers are left with only terrible options and little chance of staving off unemployment except by further raising inflation.
When it comes to real war, if you have reason to be afraid of being invaded, it would be suicidal to provoke your adversary before you’ve armed yourself. That is essentially what Trump’s economic attack risks: given that the U.S. economy is entirely dependent on Chinese sources for vital goods (pharmaceutical stocks, cheap electronic chips, critical minerals), it is wildly reckless not to ensure alternate suppliers or adequate domestic production before cutting off trade. By doing it the other way around, the administration is inviting exactly the kind of damage it says it wants to prevent.
This could all be intended as just a negotiating tactic, Trump’s and Bessent’s repeated statements and actions notwithstanding. But even on those terms, the strategy will do more harm than good. As I warned in Foreign Affairs last October, the fundamental problem with Trump’s economic approach is that it would need to carry out enough self-harming threats to be credible, which means that markets and households would expect ongoing uncertainty. Americans and foreigners alike would invest less rather than more in the U.S. economy, and they would no longer trust the U.S. government to live up to any deal, making a negotiated settlement or agreement to deescalate difficult to achieve. As a result, U.S. productive capacity would decline rather than improve, which would only increase the leverage that China and others have over the United States.
The Trump administration is embarking on an economic equivalent of the Vietnam War—a war of choice that will soon result in a quagmire, undermining faith at home and abroad in both the trustworthiness and the competence of the United States—and we all know how that turned out.
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