It has been quite a week. In fact, it has been quite a start to the year. The news cycle never stops – but it has rarely moved faster. Donald Trump’s threats to invade Panama seem an aeon ago – even the humiliation of Volodymyr Zelensky in the White House feels like it happened months ago. If you like your politics to be action-packed, it’s hard to beat the chaos of Trump’s second term in office.
In the last few days alone, we’ve had some of the most epic days in market history, with the announcement of global tariffs resulting in trillions of dollars of destruction of value. That was followed by euphoria as the US President announced a 90-day pause – briefly causing share prices to soar, before plunging again as cold reality caught up with hope and expectation.
USA vs the rest
On “liberation day”, Trump plunged the world into uncertainty. The imposition of blanket tariffs on every nation on earth was designed, said the President, to put an end to the fact that the US had been “looted, pillaged, raped and plundered by nations near and far, both friend and foe alike”.
For a few days, it was the US taking on the rest of the world – shattering assumptions, alliances and trust in the process. Such were the misgivings that US government bonds plummeted, threatening the very economic foundations of the world’s most powerful state. True to form, as the cracks began to appear, Trump trivialised the havoc he had caused. People “were getting a little bit yippy, a little bit afraid”, he said. For “little bit yippy” read double-digit decline in values of US stocks, and a bloodbath in technology companies’ shares so bad that some tore up major investment plans slated for later this year.
Those with more at stake than Trump – whose enjoinder to followers of his social media account a few hours earlier that it was a “great time to buy” came hours before he announced the delay in imposing tariffs looks to many like market manipulation – have not taken chances. On Thursday, Apple chartered planes to ship 600 tonnes of iPhones, or around 1.5 million units, from India to the US, amid fears that handsets would double, or even triple in price if and when tariffs kick in.
Planned U-turn?
Trump and his court are difficult to read, because they keep changing their minds. On Thursday, the President said that he was simply trying “to get the world to treat us fairly”, adding that “everybody wants to come and make a deal”. It was all about fairness, agreed US Commerce Secretary Howard Lutnick. Finally, thanks to Trump, “we’re getting the respect we deserve”.
That sounds very different from what people in China are hearing. For Beijing, this is all about not only managing the rise of China but blocking it. So, while Trump has imposed a blanket tariff on all nations, pending a 90-day pause, he has raised them on China – first by adding 84 per cent to penalties he had already announced, and then raising them again to 145 per cent. He did this, he said, “based on the lack of respect that China has shown to the World’s Markets”.
According to the US Treasury Secretary, all of this was part of a cunning plan. “This was his strategy all along,” Scott Bessent told reporters at the White House. Better still, Bessent went on, Trump’s erratic imposition of tariffs on every country on earth, followed by warnings that none should dare retaliate, had paid dividends. “You might even say he goaded China into a bad position,” he said, noting that China had imposed retaliatory tariffs.
Taking on China
We are now at the start of a war. It is a trade war, for now; but it may well develop into something much more serious, with far more profound consequences. One thing that history reveals, of course, is how easy it is to think that confrontations will be quick and simple. Just think of the First World War and the conviction that it would all be over by Christmas.
Trump’s miscalculations over the last few days, weeks and months should therefore bear heavily on the mind. During his first presidency, he was itching to take on China, promising that “trade wars are good, and easy to win”. That confidence is shared by Bessent. Comparing Beijing’s situation to a poker game, Bessent exulted that “we export one-fifth to [the Chinese] of what they export to us, so that is a losing hand for them”.
Those who buy Chinese-made sofas, beds, home furnishing (amongst many other goods) at low prices in the US might disagree. Prices are either going to go up because tariffs will make things more expensive, or because factories in the US will be much more expensive to run and therefore costs will be higher.
Amongst those holding a losing hand is none other than President Trump’s most vocal supporter and right-hand man – Elon Musk. On Friday, Tesla stopped taking orders in China and even removed the “order” button from its website for models that are made in California, and which will now cost almost double the price if exported to China. Last year, Tesla sold almost $100bn worth of vehicles in China. As Musk spends more time at his day job, he might ponder whether his cheer-leading for Trump was as well-judged as he thought.
Bessent is also wrong, because trade is not just about volume and value. China controls around two-thirds of the global supply of rare earth elements as well as around 90 per cent of processing capacity. These are critical to new technologies, not least of which are advanced weapons systems. China promptly put strict export controls on all of these when Trump first imposed tariffs last week.
While it is true that around 75 per cent of container ships that sail to the US fully loaded come back to China empty, the US is important – but not critical – to China’s economy. In fact, China’s trade with countries in South East Asia is now larger than with the US.
If that speaks to diversification on Beijing’s part, then so too does the fact that over the last decade, considerable thought has been given to addressing vulnerabilities that could be aggravated by a hostile US. Those include an energy strategy that has seen China become the global centre of production of renewables and of battery storage, as well as mega-deals to supply China with oil from states in the Gulf.
Likewise, planning has gone into food supply chains, both through the development of massive forward deals with farmers in Brazil, for example, but also through the acquisition of farmland by state-owned businesses and by individuals well-connected in Beijing in countries around the world – something that has been a source of controversy in places like Australia.
And then, of course, policymakers have been thinking about what a second Trump presidency would mean for many years and how to cope with an aggressive set of policies directed at China. One area is the targeting of specific sectors that can hurt the US – such as agriculture, where the US has more than 500,000 producers of soya beans (a key US export to China) and where Beijing has already retaliated. The targeting of Tesla is also no coincidence – if there is anyone who can exert leverage, goes the thinking in the Chinese leadership, it is Musk.
Beijing gears up
It has been interesting to watch China’s response over the last week or so. The reciprocal tariffs were, in my opinion at least, always going to be applied. Trump’s repeated increases higher and higher is a concern, but it looks like the decisions of a weak leader, reacting in real time – rather than being planned in advance.
Thus, we’ve seen Chinese leadership talk about stability, respect for international economic and trade rules and the multilateral trading system, and of how ties with neighbours in Asia will be strengthened in the face of pressure applied to all by the US. In a meeting on Friday morning with visiting Spanish prime minister Pedro Sanchez, Xi Jinping called on the EU to work with China to “safeguard international fairness and justice, and to safeguard international rules and order”. It was important to stand up to “bullying” by the US, said Xi, adding that “there are no winners in a tariff war”. Beijing’s view is that Trump is seen by all as volatile, unpredictable and unreliable.
That offers an opportunity to frame the US as a bully, willing to use force to get its own way. One should not underestimate the shock, particularly in middle- and low-income countries, at how Trump has brought the world – and the US economy – to its knees. As such, while China has often struggled to make friends as a result of its own strident policies and clumsiness, Chinese foreign ministry spokesperson Lin Jian chose his words carefully when he said that “a just cause enjoys the support of many”.
Scenario planning in Beijing, though, foresees worse troubles ahead. It was not for nothing, then, that last month Xi announced that China was ready for “any type of war”. The calculus is that the trade war is the opening salvo that could escalate into something more dramatic and more serious – with obvious global consequences. That was why on Thursday morning Chinese foreign ministry spokesperson Mao Ning shared a video of the country’s founder, Mao Zedong, from 1953 during the Korean War, with the caption: “We are Chinese. We are not afraid of provocations. We don’t back down”.
This all could get a lot, lot worse. So, the real question is whether there is a deal that can be done that can solve the problems that Trump thinks he can see, and which Beijing will be able to agree to. Behind the scenes on both sides, it is fair to say that the jury is out. If Trump proves to be the real deal, and can negotiate the way he says he can, then perhaps we’ll find peace in our time. The fact that the deal he agreed in 2020 was a poor one does not fill many with optimism. It’s time to fasten your seatbelts. We may be in for a very bumpy ride.
Peter Frankopan is Professor of Global History at Oxford University. His books include ‘The Silk Roads: A New History of the World’
