Trump thinks he has a strong hand. In fact, Washington is far more vulnerable than Beijing.

Sep 2018
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“When you’re already $500 Billion DOWN, you can’t lose!” U.S. President Donald Trump tweeted on April 4. He seems to believe that because the United States has a huge trade deficit with China — actually $337 billion in 2017, not $500 billion — he is bound to win the impending trade war between the two countries. But even though China sells more to America than it buys in return, Beijing’s position is actually much stronger, both economically and politically, than that crude calculus suggests.

Economically, both the United States and China would lose from a trade war. Punitive tariffs would push up import prices, dent exports, cost jobs, and crimp economic growth, so both sides would do best to avoid an outbreak of hostilities. But now that the Trump administration is threatening to impose 25 percent tariffs on $46 billion of U.S. imports from China and China has responded in kind, a trade war looms. Trump has since raised the stakes by threatening tariffs on a further $100 billion of imports (so far unspecified), which Beijing promptly said it would match. Trump’s calculation appears to be that China has more to lose and so will back down. He is wrong.

Why China Will Win the Trade War