Zongyuan Zoe Liu
How did the world’s two largest economies stumble toward a trade war that neither truly seeks and which the rest of the world can’t afford? Following U.S. President Donald Trump’s “Liberation Day” ceremony on April 2, during which he unveiled tariffs of varying levels on all of Washington’s trade partners, the United States and China have engaged in several rounds of tit-for-tat escalation, driving tariffs between the two countries to prohibitively high levels. By April 11, tariffs on Chinese goods entering the United States had reached 145 percent, while U.S. goods entering China reached 125 percent. Unless the two countries carve out broad exemptions, the $700 billion in annual bilateral trade between them could shrink by as much as 80 percent over the next two years. Markets have responded negatively to the looming trade war, and many economists and analysts have struggled to explain what the Trump administration is trying to achieve.
The best way to understand the current standoff with China is as the product of faulty assumptions and missteps on both sides. Within Trump’s orbit, powerful players and factions misjudged the resilience of China’s economy and wrongly assumed that Chinese leader Xi Jinping would rush to make a deal in order to avoid a domestic backlash. As a result, China hawks in Washington failed to anticipate how resolutely Beijing would react to Trump’s tariffs.
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