It represents 19% of global GDP, but accounts for 32% of world industrial production. The imbalance, whose implications contributed to Trump’s rise, is not sustainable. At the end of the course, Chinese triumph in the tariff war depends on the “normalization” of its economy.
China’s exporting model is anchored in excess domestic savings-otherwise said in repressed internal consumption. The secret rests on the totalitarian political system, which maintains low wages, vetoes social welfare policies and refuses to erect a decent social security system.
Since Chinese WTO ticket in 2001, based on an intricate network of state subsidies, the model has provided the industry’s expansion in successive technological heels, until the production of electric vehicles, solar panels, batteries and AI software. Chinese goods flooded the world market, eliminating competitors, devastating old industrial regions and, in this step, shifting national political systems.
The US reaction began with Trump 1 selective tariffs, which sought to stimulate industrial relocation in the US or partner countries. He went on with Biden, which launched effective industrial policies for strategic subsidy (semiconductors, electric vehicles, aerospace) and failed in an attempt to sanction Chinese -end companies, something illustrated by Huawei and Deep Seek. Trump 2, however, threw the board out the window, betting on a aimless mercantilist adventure.
Trump had the possibility of radicalizing policies followed by Biden. In this line, in coordination with the allies in Europe and would start a collective and gradual tariff escalation over China along a multi -annual horizon. The pressure would support negotiations based on the requirement to reduce Chinese industrial subsidies and, imitating rival practices, obtaining the displacement of China’s production units to the US in joint ventures with national companies.
The goal would be to achieve a rebalancing of the world economy, not to build a protectionist wall around the US. Trump, however, sees commerce as a zero -somed game oriented by the obsessive search for surpluses. From this ideological superstition, he decided to declare a tariff war against the world.
Xi Jinping drew his way. China is showed as a champion of free exchange and multilateral trade rules. While applying retaliation to the US, it promises to open its domestic market and control the prices of its exports, avoiding a global flooding of surplus products. With an eye on Europe, the Chinese exploit the opportunities created by Trump’s onslaught against the European Union.
The success of the strategy depends on a structural review of the Chinese economic model, with the absorption of the surplus of industrial goods by the domestic market. In the scenario of the tariff war, dramatized by demographic aging, China needs to transform domestic savings into consumption, which requires profound social reforms.
Tomorrow’s China will not be the “factory in the world,” but a normal industrial economy. The inevitable mutation was accelerated by Trump. Ironically, the main cost of rebalancing will fall on the US.
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