Why China has the upper hand in its trade war with America

“HAVE YOU heard of the eye of the storm?” asks a video posted on April 29th by China’s Ministry of Foreign Affairs. The centre of a tornado or cyclone can be deceptively calm. But it is actually a “deadly trap”. The world is caught in a similar spot, the ministry argues, thanks to the “tariff storm” America has conjured up.

It is not a bad analogy. The world economy has indeed entered a lull. Danger seems to lie both behind and ahead. When Donald Trump said on April 9th that he would delay his “reciprocal” tariff plan, financial markets stopped howling quite so loudly. Many of Mr Trump’s aides also felt happier. Whereas the president’s original plan had imposed baffling levies on close allies and distant islands, what remained during the 90-day pause was easier to understand: a high tariff on America’s principal rival, China, and a low tariff for almost everyone else.

The calm, however, cannot last. As container ships chug across the Pacific from China, America’s leaders are waking up to the trap they have set for themselves. The status quo, including a tariff of 145% on many Chinese goods, is not “sustainable”, said Scott Bessent, America’s treasury secretary, on April 22nd. That percentage “will come down substantially”, Mr Trump himself said shortly afterwards. America has already exempted many electronic goods, including smartphones, from the highest levies. When Punchbowl, a news outlet, reported that Amazon would display the cost of tariffs alongside the price of some goods, America’s trade warriors seemed appalled by their own handiwork. The White House’s press secretary accused Amazon, which downplayed the proposal, of a “hostile and political act”.

Their disquiet reflects the fact that these unsustainable tariffs were also largely unplanned. When Mr Trump proposed a levy of 34% on China on April 2nd, he did not know that China would match it. And when China retaliated, its leaders did not know for sure that America would be quite so reckless in response.

Could things de-escalate just as quickly? The tariffs doing the most harm to America’s economy are the ones America itself has imposed. The jump in price of many Chinese imports will hurt American consumers, whether Amazon highlights the cost or not. It could also cripple many firms that rely on Chinese components. Mr Trump could contain this damage by lowering his own tariffs unilaterally to a more bearable level. All it would take is an executive order, of which he has already signed over 140 since January. But he wants to avoid looking weak. He has therefore insisted he will wait until China calls first. “The onus will be on them to take off these tariffs,” said Mr Bessent on April 29th.

That stubbornness has given China unaccustomed power over America’s immediate economic fate. If it reaches out to Mr Trump, the worst could be averted. If it does not, the storm will soon return. All signs suggest China’s leaders are not ready to relieve the suspense just yet. They may even be quite enjoying it.

This bravado may not last. China is already in a protracted war against deflation and a property slump. Now exporters are beginning to worry. A monthly survey of Chinese manufacturers released on April 30th showed that new export orders were at their weakest since the end of 2022. To weather the trade war, China needs its cautious consumers to start spending.

But for now China seems reluctant to back down. Although the economic standoff between the two superpowers will hurt both of them—it is what economists call a “negative sum” game—the geopolitical tussle is inevitably “zero sum”. Anything that hurts America helps China. America’s loss of credibility is China’s gain.

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