Trump’s tariff war is a transformational moment for old world order

Last week, however, it was not uncommon to hear conversations almost everywhere around the word “tariffs”.

Everyone, it seemed, had a view on what US President Donald Trump was doing with his worldwide tariff onslaught and how it might affect them.

Such universal attention is a measure of the shock set off by Trump which many economists now concur is unlike anything seen in history.

Hardly surprising, then, that by week’s end there was an almost audible collective sigh of relief from investors and companies everywhere when Trump postponed his additional levies on most countries for 90 days.

That said, the jitters are far from over and great uncertainty still lies ahead, not least given the Trump administration’s still-ongoing standoff with China, the world’s second-biggest economy.

Questions, then, abound both about the events of the past week and what looms in the future. Among the most obvious is whether Trump truly “buckled” as the Financial Times called it, or whether, as is so often the case with such an unpredictable operator, there is more economic pain to come.

Then there is the question over what happens next between Washington and Beijing given that far from an easing of tensions, China upped the ante in the trade war last Friday by retaliating with 125% tariffs on US goods.

But even though China now bears the brunt of Trump’s trade war ire, its stockmarkets appear to be holding up well, closing slightly up on Friday.

China’s president Xi Jinping, along with others, will also have taken heart that the country’s yuan was reassuringly steady after China’s central bank set a slightly stronger benchmark rate for the currency, interrupting a series of small depreciations in recent days.

For its part, the Chinese government is keen to show that it will not be pushed around. Beijing’s mood has not been helped either by US vice-president JD Vance’s derisory reference these past days to “Chinese peasants”.

Women sit and talk on a waterfront bench facing large container ships docked at Yantian International Container Terminals, with towering gantry cranes and stacks of shipping containers 

Nationalist rhetoric

Far from blinking in the face of such language or Trump’s aggressive levies, Beijing instead embarked on a campaign invoking nationalist rhetoric to bolster public confidence in the face of such an economic threat.

That familiar old symbol of communist resolve, late dictator Mao Zedong, has been resurrected. On social media, China’s foreign ministry spokesperson Mao Ning posted a video of Mao giving a speech during the 1950/53 Korean war, when Chinese soldiers fought against US-led UN forces. “No matter how long this war is going to last, we’ll never yield, we’ll fight until we completely triumph,” then-chairman Mao says in the clip.

In another post, the spokesperson quoted Mao as saying in 1964: “The US intimidates certain countries, stopping them from doing business with us. But America is just a paper tiger. Don’t believe in its bluff. One poke, and it’ll burst.”

The sense among China’s leaders that it might win the trade war with America is in part explained by the country’s improving economy. For some time it has been in the doldrums, struggling with deflation, a housing market downturn, demographic shifts, and the state increasingly infringing on the private sector.

But the mood has been more upbeat of late, says Scott Kennedy, a senior adviser and trustee chair in Chinese business and economics at the Center for Strategic and International Studies (CSIS) who has visited China regularly these past years.

“A part of the explanation lies with recent domestic developments. The first was the leadership’s admission last September of the country’s severe economic challenges and the subsequent announcement of a major stimulus plan, whose details were revealed this March,” wrote Kennedy recently in the US-based magazine, Foreign Policy.

The second factor Kennedy identifies was the Chinese artificial intelligence company DeepSeek’s “path-breaking large language model, which suggested that Chinese innovators were able to find workarounds to US-led technology restrictions”.

In short, there has been a growing sense that the economic downturn was over and the Chinese government, businesses and investors could see initial shoots of renewed growth.

Diplomats and analysts have long recognised that Beijing has frequently been a canny player on the world geopolitical stage and also rarely fails to seize any opportunity economically should it come its way.

For some time now, one of Chinese president Xi’s slogans has warned of “great changes unseen in a century”.

What might have been interpreted before as the rantings of a paranoid autocrat now seems – in light of the challenge thrown down by Trump’s tariffs and trade war – almost like a prophecy.

Certainly, there’s no denying that China’s banks still need access to US dollars, but under Xi the country has, as The Economist magazine recently highlighted, “reduced its vulnerability to American chokeholds” and now makes most non-bank international payments in yuan.

Treasury Secretary Scott Bessent speaks to reporters outside the West Wing of the White House

China’s accusations

Analysts also note that as the first round of Trump’s tariffs got under way, China’s foreign ministry, while accusing the US of violating World Trade Organisation (WTO) rules and undermining the global economic order, also promised that Beijing “will

only continue to open its doors wider, regardless of the changing international landscape”.

Last week, China’s spokesperson for the Ministry of Foreign Affairs Lin Jian posted a social media message appealing to countries in the global south, saying “the latest US tariff hikes will essentially deprive countries of their right to development”.

Read this another way and China, in appealing to countries to come together, is cleverly repositioning itself as the responsible global power and suggesting that the real threat comes from the same US that once presented itself as the guardian of the international order.

But smart diplomacy aside, China could also manoeuvre the current tariff crisis to take advantage of the opportunities it presents.

Many southeast Asian economies that are key manufacturing hubs for companies looking to diversify away from China have been hit especially hard by Trump’s tariff war.

While few want to pick a fight with America publicly, the region is rattled, and Beijing sees its chance.

Over the past weeks, China has held economic talks with Japan and South Korea, hit last week with 24% and 25% tariffs respectively, as well as with the European Union which was slapped with 20% duties.

Leery as many of Beijing’s trading partners will be of China’s promises and presenting itself as “protector” of the international order, some could have little choice but to look to strengthen ties if Trump’s tariffs take a real grip on their economies.

Meanwhile, according to economists, once the across-the-board retaliatory tariffs charged by China on US goods come into effect they will currently stand at 125% and will hit American exports of semiconductors, machinery, agriculture and other goods.

According to China’s state news agency Xinhua, Xi said on Friday that “there are no winners in a tariff war” and “confronting the world will only lead to self-isolation.”

For its part, however, the Trump administration, while easing off on other countries, shows no sign of backing off on China and continues to build a fearsome trade wall.

In stockmarket parlance, team Trump remain “bullish” over their strategy and position vis-a-vis China, a point made in no uncertain terms recently by US treasury secretary Scott Bessent.

“I think it was a big mistake, this Chinese escalation, because they’re playing with a pair of twos. What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them,” Bessent insisted a few days ago.

Traders work on the floor of the New York Stock Exchange (NYSE) on April 11, 2025 in New York City. After one of the most volatile weeks in recent market history, the major indexes ended the week up 5%

Worst-case scenario

Washington’s new duties on Chinese goods now stand at more than twice the 60 % tariffs Trump threatened during his election campaign, a level that many economists had at the time considered a worst-case scenario.

Trump’s tariff war and taking China head-on as part of it, say analysts, betray a far greater appetite for risk in pursuit of highly questionable policies than in his first term.

Given that in the current standoff it took nearly a week to persuade Trump to pause levies on other countries and his continuing steadfast position on China, confidence in the US as a rational actor has taken a serious knock.

In Washington’s corridors of power there was no escaping the palpable sense of relief in some quarters at Trump’s apparent volte-face on some tariffs last week. But that hasn’t stopped him scaring members of his own base, warned some American commentators.

Among these was the Wall Street Journal columnist Peggy Noonan who noted that the “president’s overall strategy was never clear beyond scare everybody”.

“He didn’t use to scare his policy allies-small-business people, workers, retirees. He did this week. Fear dampens reflexive support. Politicians need reflexive support from the bottom of their base as a platform from which to move. The president weakened his position,” Noonan said, adding that this went far beyond America itself.

“The tariff regime made the world doubt his constructiveness and good faith. It would have been understood if he’d gathered allies and taken a big swing at China. Instead he took a big swing at the world, including China.

“It damaged America’s credibility,” she concluded.

While Trump’s ultimate intentions as so often are not fully clear, there is little to prevent the decoupling of the world’s two largest economies.

As to who will win out this, as one analyst recently put it, is “a game of who can bear more pain”.

It almost goes without saying, too, that because trade lies at the heart of America’s ties with its main tariff target, China, the rest of the bilateral relationship is now also under considerable strain.

Writing recently in the magazine Foreign Affairs, Adam S Posen, president of the Pearson Institute for International Economics in the US, observed that the Trump administration “believes it has what game theorists call escalation dominance over China and any other economy with which it has a bilateral trade deficit”.

In the words of a report by the Rand Corporation, escalation dominance means that “a combatant has the ability to escalate a conflict in ways that will be disadvantageous or costly to the adversary while the adversary cannot do the same in return”.

Posen’s view is that if the administration’s logic is correct, then China, Canada, and any other country that retaliates against US tariffs is indeed playing a losing hand as US treasury secretary Bessent recently implied. But Posen believes that logic is wrong and the opposite is in fact the case with China having the escalation dominance in this trade war.

“The United States gets vital goods from China that cannot be replaced any time soon or made at home at anything less than prohibitive cost,” warns Posen.

“Reducing such dependence on China may be a reason for action, but fighting the current war before doing so is a recipe for almost certain defeat, at enormous cost.”

Transformational

In what many analysts now regard as a transformational moment in the global order, the question of who will prevail between America and China is in some ways a moot point, some argue.

Far and away it’s more likely that both sides get hurt – as will consumers and workers.

As economist Posen reminded recently in Foreign Affairs, back in 2018, Trump famously tweeted that “when a country (US) is losing many billions of dollars on trade with

virtually every country it does business with, trade wars are good, and easy to win.”

This past week should have gone some way to disabusing the US president of that notion. There might be some relief for now that Trump appears to have blinked, but not where China is concerned – and the feeling in Beijing is mutual.

Only the coming weeks and months will tell which nation – if either – comes out best.