China pushed back against Trump’s tariffs, promising a slugfest between two giants that are big enough to undermine the stability of the global economic order. Trump just paused tariffs for most nations because of stock market chaos, but he says China “cheats” and raised its tariffs to 125%. President Xi Jinping called Trump’s tariffs “blackmail,” threatened to “fight to the end,” and retaliated by levying 84% tariffs on American imports. China’s manufacturing sector is more significant than America, Germany, and Japan combined, and Xi, like Putin, isn’t frightened of Trump. Even so, a trade war couldn’t come at a worse time for China. Its economy has lagged, and its customers are angry about its technology piracy and collaboration with Russia. Sanctions may follow because Beijing buys Russian oil and secretly supplies the Kremlin with weapons and technology, which it denies. But as China this week voiced its moral outrage against US tariffs, Ukraine captured Chinese soldiers fighting with the Russian army. China denied involvement, but a Washington spokesman commented that its aggression in Ukraine “is very disturbing.” It’s important to note that Trump’s crackdown on trade skulduggery is long overdue. Trade has always been riddled with wrongdoing. After all, smugglers – who illegally transport objects, substances, information, or people – are members of the world’s oldest profession. Even now with borders and officials and the World Trade Organization (WTO) policing the flow of goods, “trafficking” is rampant, as are “non-tariff barriers.” These are rules and regulations designed to block shipments for strictly political, protectionist, or competitive reasons. Another problem is that customs enforcement is lax: The WTO is clueless and often incompetent, and many players involved in the world’s export-import infrastructure have mastered the use of fraud, illegal workarounds, and backdooring of illicit goods through third-party countries in order to avoid tariffs. Trump’s trade concerns are valid, but his rants are exaggerated and based on a fallacious “win-lose” mentality which ignores, and threatens to destroy, the benefits of the global trading system. No less than an American libertarian and Republican, Senator Rand Paul, articulated this problem. “Tariffs are taxes,” he said on CNBC. “It is a fallacy that in a trade someone must lose or be ripped off. Every trade in a market is mutually beneficial. No American consumer `trades’ with China when they buy something from Walmart. They buy it because they want or need it, and because they believe the price is fair. It’s always a win. America got wealthy with trade, and countries without trade don’t get wealthy. I like Trump, but I don’t get this. The trade fallacy will end up losing our wealth.” Trump’s grumpy trade guru, Peter Navarro, is also guilty of economic ignorance. He is dead wrong, for instance, to insist that the European Union be forced in negotiations to scrap its 19% VAT tax because it is a “non-tariff barrier.” That’s nonsense. The VAT is a sales tax that applies to all goods sold within the EU, whether made in Europe or imported from abroad. There is no discrimination against American goods, and Europe cannot ditch VAT because it underpins government costs. However, there’s no doubt that America’s “rust belt” is the result of the flood of cheap goods from abroad for decades that benefitted American consumers but gutted local manufacturing. The overall economy has grown since 2002, according to a report by Information Technology and Innovation Foundation, “but manufacturing has not kept up with national growth and decreased substantially… Textiles and apparel manufacturing shrank by more than 50%.” In 2024, the United States imported $440 billion worth of Chinese goods, more than three times the value of the $144 billion of US goods that China imported. To reverse this, Trump first levied a 20% “fentanyl” levy on all Chinese goods, then gradually stepped this up to 125% as China objected, and then retaliated. Going forward, the stakes are high for both sides, but neither leader will back down. President Xi has also counter-attacked by refusing to sell TikTok to American investors and forbidding a Hong Kong company from selling its Panama Canal ports operations to a US consortium. China has also stated that it will be willing to hold talks, but not under duress. “At best, they believe, it would postpone America’s determination to destroy China’s economy,” speculated a Chinese expert. However, the Wall Street Journal pointed out: “America’s services (trade surplus grew to $295 billion last year, up from $77 billion in 2000. This is a stark reversal from the mid-20th century, when the US was a manufacturing giant with a goods export surplus but a services trade deficit.” Beijing has also undertaken defensive measures in anticipation of this confrontation, backstopping Chinese banks and shares to protect them against stock market plunges. Officials boast that the country is resilient, but 104% tariffs will make Chinese exports unaffordable. The only hope for respite is if American consumers become upset by rising costs and share slumps, or if American importers or manufacturers are unable to afford Chinese parts and components. But whatever happens, there will be economic damage and increased smuggling, as Chinese exporters use backdoor deliveries via countries without high tariffs. “If it’s a question of who can endure more pain, China will not lose,” suggested Wang Wen, dean of the Chongyang Institute for Financial Studies at Renmin University in Beijing. China will target and penalize American firms operating or doing business there to garner allies against Trumpian tariffs in high places in America. The most significant employers in China are Apple, Tesla, and Broadcom, which is why Elon Musk and others are being drawn into the fray. He has been attacking the policies as wrong-headed and called Navarro “truly a moron” and “dumber than a sack of bricks” on social media. But, by contrast, China’s biggest customers, such as Amazon, Costco, and Walmart, anticipated this issue and, after COVID, baked in defenses against supply chain problems. Meanwhile, America’s trade rivals, with large goods surpluses such as Japan, race to discuss lucrative deals to placate President Trump. “For instance, there is talk of a big energy deal in Alaska where the Japanese and perhaps the Koreans, perhaps the Taiwanese, would provide — would take a lot of the offtake,” said US Treasury Secretary Scott Bessent. They propose a multi-billion dollar liquefied natural gas scheme that would create thousands of American construction jobs and add billions of dollars to America’s future trade earnings. It’s likely that with so much at stake, talks will lead to a resolution rather than an all-out economic war. But the two giants are playing a game of chicken thus far, and their decisions will determine the fate of the system because of their disproportionate involvement in trade. Stock markets will roil and inflation will increase, possibly leading to a global recession, which some believe has already arrived. After Xi’s defiant stance, the Times of India headline summed up global concern: “Tariff war: Trump escalates, Xi digs in – who will blink first? A trade agreement with US President Donald Trump now seems unlikely, prompting Chinese President Xi Jinping to impose his own broad tariffs of 34%, signaling readiness for a lengthy and bitter trade war.” By contrast, China’s Communist Party newspaper, The Global Times, emphasized that the US has been the biggest winner in the world trade sweepstakes it created years ago. “As the world’s largest economy, the US has long accounted for over 25% of global GDP, and the US dollar, as the dominant international reserve currency, constitutes around 60% of global foreign exchange reserves. With these advantages, the US has reaped enormous benefits from economic globalization and the dollar-based hegemonic system, making it undeniably the biggest beneficiary of free trade and the current international economic order. Yet in recent years, the US has refused to acknowledge the gains it has made from free trade, instead portraying itself as a victim of an unfair global trading system. It no longer promotes economic globalization; on the contrary, it has increasingly become a disruptor.” Reprinted from dianefrancis@substack.com – Diane Francis on America and the World. The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.