Trump’s tables turn

All it took was for China to slap controls on exports of rare earths for the tables to turn. For several weeks after April 2, “Liberation Day,” when President Trump slapped so-called reciprocal tariffs on scores of countries, the White House and most independent commentators agreed on one thing, namely that the U.S. was in a better position than China to win the trade war. China exported more to the U.S. than the U.S. exported to China. If this trade was halted by tariffs and retaliation, then China stood to lose more export revenues than the United States. The U.S. economy entered 2025 firing on all cylinders, whereas China entered the year with serious financial problems, especially in the real estate sector. In this respect also, America was in a better position to withstand an extended commercial conflict.

Moreover, in contrast to the Trump 1.0 and Biden years, China this time would not be able to evade U.S. tariffs by routing its exports and assembly operations through third countries. Officials of other countries desperate for access to the U.S. market would book the first flight to Washington, D.C., where they would enter into negotiations with the Trump administration and end up offering valuable trade concessions.

It took only a couple of weeks and China’s rare earths ban for reality to bite. That the U.S. relies so extensively on imports from China is not an advantage but a liability. Those rare earths go into batteries, electronics and other inputs used in smartphones, motor vehicles and military hardware. In many cases, China controls upward of 90 percent of global refining capacity of those minerals. Sourcing these same inputs from alternative sources may be literally impossible, while building analogous refining capacity in the U.S. would take years. In contrast, much of what China imports from the U.S., soybeans for example, can be sourced from markets such as Brazil.

To be sure, U.S. bans on high-tech exports to China are apt to slow that country’s technological upgrading. But many of those bans are not new; they were put in place already during the Biden administration and Trump’s first term. So China has already been at work for some years at developing its own indigenous capacity to produce those high-tech inputs, and in implementing workarounds for what is still missing. Thus, in April of last year Huawei announced a new smartphone that runs on an enhanced 7 nanometer chip, seemingly circumventing U.S. efforts to deny it that technology. In November, it unveiled a phone that runs entirely on Chinese software, freeing it on reliance on Apple’s iOS and Google’s Android.

As for economic and financial problems, the Chinese government has rolled out a suite of policies to contain them. It expanded fiscal spending in the first quarter of 2025 at the fastest rate since the Covid year of 2022. The People’s Bank of China has allowed the renminbi to depreciate gradually against the dollar, helping to support the country’s export industries while avoiding the kind of large depreciation that would alarm financial markets. New home prices are declining more slowly and in fewer cities than in the past, suggesting that the property market may be stabilizing.

In contrast, the Trump administration’s efforts to manage the economy are best described as chaotic and contradictory. One day Trump and his advisors want a stronger dollar, the next day a weaker one. Tariffs that roil financial markets are unexpectedly paused, but for how long no one knows. Despite a budget deficit already exceeding 6 percent of GDP, the Congress remains committed to additional tax cuts, to be matched by purely mythical expenditure cuts identified by Elon Musk’s DOGE. And with the bond market vigilantes already on high alert, Trump has repeated his threat to fire Federal Reserve chair Jerome Powell. Predictably, U.S. firms have stopped investing in the face of high uncertainty, while consumer confidence has deteriorated markedly. Which is the stronger economy now?

Rather than allowing China to be isolated from the rest of the world, President Xi has gone on a “charm tour” of Southeast Asia, promising to strengthen trade ties with the region. Spanish Prime Minister Pedro Sanchez has traveled to Beijing, as readers of this newspaper will know, auguring the possibility of deeper trade relations between China and the EU. Meanwhile, the White House’s promise of new U.S. trade deals has given way to radio silence. Trump’s other dealings — with Columbia University and the New York law firm Paul Weiss, for example — have likely convinced foreign governments that giving in to this administration’s unreasonable demands leads not to reciprocation but only to more unreasonable demands.

Finally, there is the question of which government is better able to stay the course. President Xi and the Chinese politburo face no political competition. The U.S. attack has only excited the patriotism of a prideful Chinese people and unified them behind their leader, not unlike how Trump and Vice President J.D. Vance’s attack on Volodymyr Zelenskiy unified the Ukrainian people behind their president. The U.S. is now seeing marches and demonstrations against Trump’s presidency every weekend. As Trump’s core supporters begin experiencing higher prices at the grocery store and rising unemployment, popular opinion will take an ominous turn for a president whose approval rating on the economy has already fallen to 43 percent.

How will Trump’s trade war end? Most likely, he will take the advice allegedly offered in 1966 by then Vermont Senator George Aiken regarding the Vietnam War. The administration should simply “declare victory and get out.”