While President Trump’s unorthodox deal making style has intentionally resembled a “bull in a china shop,” it was more like a placid cow in a field last week in China. The world collectively took a deep breath following the U.S.-China Summit, as neither Trump nor Chinese President Xi Jinping escalated the ongoing trade war between the two nations. However, among global leaders, business chief executives, and everyday consumers, many questions remain. Yesterday I asked 35 sophisticated Chinese CEOs if the Summit was a “12” on a grading scale of one to 10. Perhaps unsurprisingly, only two agreed. As the summit has been examined from nearly every possible angle, two primary narratives have emerged.
On the one hand, engaging constructively is a positive step, even if small. Goldman Sachs CEO David Solomon highlighted this on Fox Business. He emphasized the importance of the heads of the two largest economies meeting face-to-face to reach “a more constructive place than we’ve been over the course of the last couple of months.” Solomon said he does not believe a decoupling will occur, but he appropriately asserted that the U.S. needs a new policy to address longstanding market manipulations by China.
On the other hand, virtually no progress has been made with China since Trump took office, despite all the drama. Derek Scissors, American Enterprise Institute’s Asia Economist, embraced the more pessimistic interpretation on CNBC. He vehemently argued that “the meeting itself was a waste of time,” going on to explain how “US policy is pretty much where it was when President Trump took office.”
Both are correct. But the meeting was far more consequential than these two viewpoints permit—and not just because the U.S. 100% tariff threat or Chinese rare earths export control were averted. The key fact is that the Trump-Xi Summit revealed the limits of Trump’s tariff war and exposed that a long-term solution is nowhere on the horizon.
Trump, famous for his bullying tactics, knows well that there is only one practical answer to a bully: collective action. As the Trump administration often contends, the U.S. holds significant influence in global trade as the largest consumer. Yet, what often goes unsaid is that the world is more dependent on Chinese goods than it is on the American consumer. With this leverage, Xi has bullied countries into accepting China’s subsidized products, pressed businesses to relinquish intellectual property, and pushed unwanted foreign competitors out.
While Trump is among the best at combating collective action, he has proven less capable at building it. His tariff tirade has made it impossible for him to build a strong consensus in response to China’s predatory trade machinations. So, who’s the bully and who’s getting bullied?
Abuse of Tariffs for Personal Crusades
Trump has abused the potency of tariffs for the purported promotion of economic security by using them as a weapon to settle personal scores or take advantage of weaker nations.
This past week, the president levied an incremental 10% tariff on Canada after the friendly neighbor to the north aired a controversial but accurate and costly TV ad during the widely watched World Series. In a response last week, the Wall Street Journal‘s editorial board slammed Trump’s actions, calling them a “tantrum” and accusing him of “taking Reagan’s trade beliefs in vain.” The Journal editors, mocking Trump, clarified the facts: “Mr. Trump is wrong about the Reagan speech, and he was wrong when he said on social media that ‘Ronald Reagan LOVED tariffs for purposes of National Security and the Economy.’ The Gipper was a free trader.”
In July, Trump imposed an additional 40% tariff on all exports from Brazil unless it dropped the “witch hunt” prosecution of former President and Trump ally Jair Bolsonaro. South Africa received steep tariffs over what Trump considers a mistreatment of white farmers and discriminatory land reform policies. Similarly, earlier this fall, at our September Yale Washington CEO Caucus, 82% condemned the Trump administration using tariff policies to interfere in the peaceful, domestic political events of foreign countries, such as in the Brazilian Supreme Court decision against Jair Bolsonaro. Plus, there are the damaging indiscriminate predatory tariffs that have been exacted on small, fragile nations, such as Lesotho and Laos.
The exploitation of tariffs does little to persuade potential international partners to endure economic hardship in opposition to China’s market maneuvers. Paired with a mercurial president, the risk of being abandoned by a self-interested ally now appears greater than the threat of dependence on a country with which they are not currently engaged in a bizarre trade war. In fact, roughly 60% denied that their capital investments into domestic manufacturing/infrastructure will ever be stimulated, in the short term or long term, due to President Trump’s tariff policies with 71% seeing the tariffs as harmful.
Uncertainty to Persist for Businesses and Consumers
The uncertainty caused by tariffs has slowed economic growth and punished the industrial base of longstanding U.S. partners and allies, making them more vulnerable to would-be Chinese coercion. Unfortunately, those who had hoped for more certainty after the summit were left wanting.
Export controls on rare earths were only offset for one year, or until the entente once again frays—something that seems likely, given that access to the critical minerals is dependent on Chinese access to U.S. semiconductors. Trump, though, has already ruled out the possibility of China obtaining the most advanced chips. Still, he maintains the U.S. will only serve as an arbiter in the discussions between Nvidia and China.
U.S. port fees on China’s maritime, logistics, and shipbuilding industries were also temporarily lifted, despite the initial idea that those charges were to be part of a broader strategy to revitalize the U.S. shipbuilding industry.
On the plus side, China agreed to buy “large amounts” of US soybean meal and other farm goods and to cooperate in efforts to stop the flow of fentanyl into the U.S. However, upon closer inspection, it becomes clear that Beijing has only agreed to buy the same number of soybeans as it has on average over the past five years. Similarly, many may recall that Xi had promised to buy more soybeans and reduce the flow of fentanyl into the U.S. during Trump’s first term. But those promises, along with most other terms in the “Phase One Agreement,” never came to pass.
In fact, the Office of the U.S. Trade Representative initiated an investigation into China’s apparent failure to fulfill its 2020 commitments just days before the summit last week. “China appears not to have lived up to its commitments under the Phase One Agreement with respect to non-tariff barriers, market access issues, and purchases of U.S. goods and services,” according to the press release. Five years later, the latest round of negotiations failed to address any of these issues—or even reach a general trade agreement for that matter.
AEI’s Derek Scissor was partly right. The U.S. has returned to its pre-Trump administration state. Although, it is far more expensive to manufacture goods at home and abroad, and the economic affairs of foreign partners are significantly weaker today than they were in January.
The Canadian economy is weakening due to a “structural transition” from U.S. tariffs that has “destroyed some of the capacity” in the country, according to Bank of Canada Governor Tiff Macklem. To the south, Mexico’s GDP contracted in the third quarter, sparking fears of a recession, as the industrial sector, ranging from mining to construction to manufacturing, has been severely impacted by trade tensions. Meanwhile, German manufacturing orders have come to a standstill amid tariff uncertainty, even outpacing the precipitous decline experienced during the COVID-19 pandemic, narrowly avoiding a recession. The Eurozone, more broadly, has not fared much better.
Surrendering the Perception of Power to China
The Trump tariffs have given Xi opportunities to publicly emphasize new areas of power balance between China and the U.S. through retaliatory actions. The whispers of China’s rise have been ongoing since the Obama administration, but the power that was unintentionally ceded due to the actions taken by the first and second Trump administrations cannot be overlooked.
The trade war under Trump 1.0 sparked a surge in China’s pursuit of economic self-sufficiency and strategic positioning along critical supply lines. Since then, Xi has sought to fortify Chinese industry titans, including Huawei, China Rare Earths Group, and EV maker BYD. While Trump has waged economic warfare against the world, Xi has intensified his charm offensive, presenting the Asian nation as a stable, multilateral partner in contrast to an unpredictable, unilateral, and oppressive regime. As Trump has dismantled institutions meant to project American soft power, Xi has expanded efforts to boost China’s reputation—from investments in major rail projects in Southeast Asia and large ports in South America to premier think tanks shaping discourse in Africa and Latin America among political, business, and academic leaders—all the while he continues to discredit the U.S.’s standing.
The Trump-Xi Summit ultimately revealed a fundamental flaw in the administration’s strategy: Trump has started a trade war that the U.S. cannot win alone. Tackling China’s market manipulations requires the collective action that Trump has systematically undermined through his indiscriminate use of tariffs. Paradoxically, the market distortions that the tariff “stick” most aspires to eliminate in China—the subsidies, intellectual property theft, and forced technology transfers that are the most justified targets—are the least likely to be remedied due to the collateral damage inflicted on America’s allies through Trump’s protectionism. Without carrots to complement the stick, the U.S. risks becoming isolated as its leverage diminishes. The problem is, when you overuse a stick, it tends to break—even if it is an American stick.
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