November 21, 2025
How to Win the Economic War with China
This article was originally published in TIME.
Both President Donald Trump and Chinese President Xi Jinping declared victory after their recent meeting in South Korea, which resulted in a one year truce in the economic war between the two superpowers. Yet the thaw hides a harsh reality: the United States and China did not return to the status quo ante but entered a new phase in which Beijing has gained the upper hand. To rectify this situation, Washington needs to understand what went wrong—and use the truce, however long it lasts, to strengthen its hand when the next escalation inevitably occurs.
It didn’t have to be this way. The pivotal moment came when Trump briefly imposed 145% tariffs on China in April. These soaring duties were designed to halt trade, force manufacturers to leave China, and coerce Xi into submission. They broke the seal on true “decoupling” between the two economies, with Treasury Secretary Scott Bessent conceding in April that the tariffs were “the equivalent of an embargo.”
Trump's approach to China has run aground, giving Beijing unprecedented advantage in the economic conflict.
Trump was unprepared and wrongly assumed that American tariffs were an unbeatable weapon because our large trade deficits—nearly $300 billion with China in 2024—enable Washington to impose broader tariffs on adversaries than they can impose in response. The duties swiftly sent the U.S. stock market plunging and intensified fears of a recession at home. The Trump Administration just as quickly dropped them. In the following months, China’s exports to the United States nosedived, but the country managed to expand its total exports and found new markets for over 80% of the goods it previously sold to the U.S. Trump had played what he believed was his best card: sky-high tariffs. And it turned out to be a dud.
Although this moment is often overlooked in the United States, Trump’s abortive experiment became a turning point for Beijing, which vowed to “fight to the end.” Beijing responded by weaponizing its most powerful chokepoint: the critical minerals and magnets essential to modern industry, a sector in which China has a near-monopoly. In two phases—first in spring, then in autumn—Beijing ramped up a policy designed to control the global industries that depend on these Chinese inputs, from car manufacturing to clean energy. The impact was immediate. “We have had to shut down factories,” Jim Farley, Ford’s Chief Executive Officer, bemoaned, “It's hand-to-mouth right now.”
Read the full article in TIME.
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