The US–China Trade War Isn’t Cooling; It’s Just Getting Started

The China trade war is escalating. Or is it? We have until Nov. 10 to know for sure. That is when Trump’s and Xi’s 90-day pause to tariff escalation ends.

How’s it going as we approach the deadline? Well, on Friday President Donald Trump said China was about to get whacked with 100% tariffs after Halloween.

The trade war is escalating, don’t be fooled

Trump completely changed his tune on Sunday. He is playing the role of both good cop and bad cop, a role he has down pat.  He suggested cooler heads will prevail in China and the U.S.  All is well! “Highly respected Xi Jinping just had a bad day,” Trump said on the Truth Social platform he created. Calm down, everybody. (And, at that, the market rose on Monday.)

Is it really OK? The truth is, the best that China and the U.S. multinationals that help fund it can hope for now is the status quo. It would be a stalemate, a tie game, until someone makes a move further leading to the bifurcation of the world economy into an American sphere and a China one. It might be similar to the post World War II world order, which was immediately divided up and agreed upon between the Soviet Union, U.S., U.K., and the weak and ruined nations of Europe. As it is, the Trump administration has implemented an “us or them” strategy that now puts allies in a bind. Europe will never sign big trade deals and allow for big China investments that can be used as a transit zone for Chinese goods into the U.S., further displacing American workers. Europe, like other allies, will have to block that out or face high tariffs. Europe now faces 50% steel and aluminum tariffs, for example. Their 15% car tariffs will go back to 25% as soon as China car brands made in Europe or the U.K. start arriving in American ports.

The trade war is escalating, don’t be fooled.

Last week, China announced that starting Oct. 14, the country will start charging U.S. ships for docking at Chinese ports in direct retaliation for Washington imposing fees on Chinese ships arriving at U.S. ports. I don’t know where China is going to find these U.S. flagged vessels.

The U.S. now produces fewer than five large merchant marine vessels per year, while China produces over 1,700 annually. The White House says 0% of the containers used to ship commodities like liquefied natural gas and soybeans are built by the United States, compared to 96% built by China. The U.S. does have bulk carriers flying the American flag, like the SLNC Severn. But it was built in China by Samjin Ships and rarely goes to China.

It wasn’t the port price that turned up the heat and led Trump to threaten essentially a trade boycott against China…it was word that Beijing was ready to impose more rare earth element bans after agreeing to keep those flowing to the U.S.

Shortly after, China said it would restrict imports of certain Nvidia chips, The Financial Times reported. This made little sense at first seeing how China was successful in swapping rare earths for the advanced chips it wanted to build out its AI infrastructure. Now China is saying they will restrict access to some Nvidia chips, but there are two ways of looking at that. One is to crack down on black market imports of banned chips, something they would be doing to placate Washington, actually. While on the other hand, making it more of a nuisance to import in order to force local chip makers to move more quickly up the value chain, reverse engineer what they are importing from Nvidia, make the same thing and price Nvidia out of the Chinese and broader Asian market.

Since the “Liberation Day” tariffs against China, we have had 100% tariffs temporarily imposed, leading to the lowest value of China imports in June since February 2009. The tariffs were lowered until an August trade talk deadline and then paused until November when that deadline approached.

China has made offers to invest in the U.S., if certain security constraints are lifted. Trump is unlikely to fall for this. Dumb move if he does. He is gone in three years. Any promise to Trump would be pronounced dead and buried the second he’s gone.

China and Western globalists hoped they could buy time with Trump, but Biden did them no favors. Remember that it was the Biden administration that extended Trump’s 2017 China tariffs out for another four years and raised tariffs on Chinese EVs to 100%. The geopolitical tensions have simmered.  They’re now boiling again.

China has thrived over the last 20 something years since entering the World Trade Organization because Western companies have been comfortable with the ambiguity and the promises of Chinese leaders. Their timelines are infinite. Mister Global in the C-suites did not mind because they have been busy outsourcing all their labor to China. Entire business models were built on this. Even small businesses followed suit.

Now the U.S. under Trump wants reciprocal treatment and you cannot have ambiguity if you are looking for reciprocity. You need trade tangibles – what have you done for me lately and can you prove it? Here is the deadline to prove it.

They’re even back to a quasi-ban on U.S. soy exports. They’re not calling it a ban, but it’s a ban.

As former analyst for the Economist Intelligence Unit in Hong Kong, Tony Nash, told me: Treasury Secretary Scott Bessent is not one for ambiguity. “He is an ex-trader. Politicians are comfortable with ambiguity because they will likely be gone before any decision gets made. But a fund manager like Bessent understands the cost of making a decision,” he said.

Bessent has a key position in U.S.–China trade talks. He’s serving as a lead figure, if not the sole negotiator.

As the trade war heats up, difficult decisions will have to be made.

In the “us or them” strategy, the U.S. seems to be doing OK.

Mexico is putting tariffs on Chinese e-commerce shipments so as not to get in trouble for using themselves as a transshipment hub for tariffed goods or goods no longer eligible for duty free de minimis shipment into the U.S.

The Dutch government took control of Nexperia, a Chinese-owned semiconductor maker based in the Netherlands, to ensure a sufficient supply of its semiconductors. Beijing will clearly see that as nationalizing a Chinese asset.

The European Union is considering 50% tariffs on Chinese steel, likely a move to win favor from Washington as it tries to lower its own tariffs imposed by Trump.

China Foreign Minister Wang Yi’s visits to Italy and Switzerland last week are about persuading those two countries with peace-and-love pragmatism, focusing on the economic opportunities that can be had between friends. It all comes at a time when Washington is threatening higher tariffs and advanced tech export restrictions. Yi needs to try and pre-empt a united Western front against China by appealing to Europe’s most neutral or China dependent economies.

The U.S.–China trade war won’t stay in this limbo much longer. It’s bound to get hotter over the medium to long term. The post-WWII order that let U.S. corporations arbitrage labor and environmental rules while touting their Americanism back home is finished. Trust between Washington and Beijing is minimal and will take a generation to rebuild. U.S. policy now amounts to a forced regression of the old “Asia pivot.”

American companies can keep investing in the team that’s trying to beat them—or they can invest on the home front and help rebuild the country that made their brands. If they aren’t enticed to do that through tax incentives, tariffs, and regulatory relief, they’ll keep going where the dollar goes farthest: Asia, and especially China. But if American multinationals keep betting their future on China, they’ll wake up in a generation to discover they financed the rival that replaced them.

Kenneth Rapoza is a former Wall Street Journal reporter based in Brazil and a longtime chronicler of the BRIC economies for Forbes. He is now an industry analyst at the Coalition for a Prosperous America.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.