【Text by Bao Shaoshan, Translation by Ma Li】

After the meeting between the leaders of China and the United States in Busan, it has been proven that the aggressive trade stance taken by the United States against China is a significant strategic failure. However, seven years ago, in March 2018, when Trump launched the trade war, he claimed, "Trade wars are good things, and the US can easily win."

The United States had continuously threatened to increase tariffs on China, claiming that if the two countries could not reach a trade agreement, they planned to raise the tariff rate on Chinese goods to 155% from November 1, while also demanding that China resume purchasing American soybeans and make concessions on rare earths and fentanyl issues.

This approach is rooted in the U.S.'s nostalgic longing for its former economic hegemony, which failed to revitalize industry but instead exacerbated domestic structural fragility, while China strengthened its economic resilience during this process.

Before the summit, the trade negotiation teams of China and the United States had held two days of discussions, reaching an agreement on key terms, paving the way for the summit. The consensus reached by the two countries includes the following:

1. The United States agreed to cancel the so-called 10% "fentanyl tariff" and suspend the 24% "reciprocal tariff" on goods from China, which will last for one year. Here, "goods from China" include goods from the Hong Kong Special Administrative Region and the Macao Special Administrative Region.

2. At the same time, China will adjust its related countermeasures. Both sides also agreed to continue extending certain tariff exemptions.

3. The United States will suspend the implementation of the new regulations announced on September 29 for one year (this regulation expanded the scope of export restrictions in its "Entity List," meaning any entity with at least 50% equity held by one or more entities on the list will be restricted).

4. China will also respond accordingly, suspending the implementation of its relevant export control measures announced on October 9 (including those related to rare earth elements), in order to further study and improve specific implementation plans.

5. The United States will suspend the implementation of measures targeting the Chinese shipping, logistics, and shipbuilding industries under the Section 301 investigation for 12 months. As a response, once the U.S. suspension measures take effect, China will also suspend the implementation of countermeasures against the U.S. for one year.

6. The two countries also reached consensus on other issues, including strengthening cooperation against fentanyl, expanding agricultural product trade (mainly soybean trade), and handling individual cases involving various enterprises.

7. Additionally, the United States made positive commitments in areas such as investment, while China will properly address issues related to TikTok.

Overall, the outcome of the China-U.S. meeting shows that the United States has made significant compromises on the core content of Trump's economic and foreign policy doctrines. For Trump, tariffs are a panacea; whenever he wants to express dissatisfaction, he threatens to impose additional tariffs and sees them as a key element of his "American revival" theory. Trump's goal in imposing tariffs was to reduce the trade deficit, punish other "countries that take advantage of the U.S. through trade deficits," and force companies to move production back to North America.

Although the tariff levels have not fully returned to the levels before April 1, it is clearly wrong to regard the current implemented tariffs as a sign of American "victory." We can view the negotiations around tariff levels as a negotiation game, and it is called a "game" because all analyses of tariff levels are not conducted within a correct evaluation framework. In other words, if this were the case, any tariff level higher than the level on April 1 would be considered a sign of American victory. But as mentioned, in Trump's economic theory, the significance of tariffs is far from simple. It should be emphasized that the tariff policy is a core part of Trump's national rejuvenation plan, where "rejuvenation" has both economic and diplomatic significance. Ambiguous handling of tariff levels and expanding exemption ranges will weaken the latter, and meaningless tariff levels will make them valueless for the latter.

Given the current situation, from both relative and absolute perspectives, the tariffs are no longer economically significant, nor do they meet the requirements of Trump's economic revitalization plan. In other words, the rationality of these policies cannot be supported by their current implementation levels. Continuing to dwell on them is merely a face-saving act.

The trade war is neither a good thing, nor can the U.S. easily win, which is exactly the opposite of Trump's bold claims in March 2018. Trump took a risk, but now the U.S. has fallen into a self-created dilemma - a decline in influence, the exposure of supply chain vulnerabilities, and increasing doubts about the reliability of the U.S. Meanwhile, China has consolidated its structural advantages and strengthened its global trade network during this process. In short, in the past nine months, we have witnessed a key turning point: the unipolar world dominated by the U.S. is disappearing, and a new multipodal or multipolar world is forming.

China's Economic Resilience: The Power to Absorb Shocks

The first factor leading to the U.S. miscalculation is China's structural advantages.

China's nominal GDP in 2025 is expected to be 19.5 trillion U.S. dollars, indicating its considerable defensive capacity against U.S. trade provocations. In 2024, China's exports to the U.S. accounted for 2.8% of its GDP (about 500 billion to 560 billion U.S. dollars), a considerable figure, but only 15% to 20% of its total exports. In September 2025, China's exports increased by 8.3% year-on-year, with export volumes reaching 328.6 billion U.S. dollars in that month. Even assuming that due to the U.S. 155% tariff policy, China loses the U.S. market, this would reduce China's annual GDP growth rate by approximately 0.144%, calculated based on an economic model of value-added exports (accounting for 50%-70% of total value). If calculated using the expenditure method, GDP = consumption (C) + investment (I) + government spending (G) + net exports (X-M), this loss would be offset by stopping imports from the U.S. (150 billion to 180 billion U.S. dollars, accounting for 0.8%-1% of GDP), thereby reducing the net trade impact to approximately 1.8% of GDP.

China will not fall into difficulties due to losing the U.S. market, but will instead alleviate pressure through its own structural advantages. Domestic consumption (accounting for 40%-50% of GDP, about 8-10 trillion U.S. dollars) and investment (accounting for 40% of GDP, about 8 trillion U.S. dollars) can provide strong buffers. If fiscal stimulus measures amounting to 1%-2% of GDP (about 180 billion to 360 billion U.S. dollars) are taken in the form of infrastructure construction or distributing consumer coupons, China can restore economic growth within 12 months. We have already seen China taking such measures effectively during the 2008 international financial crisis and the 2020 COVID-19 pandemic.

Moreover, the transfer of foreign trade will further enhance this resilience: non-U.S. markets (ASEAN, EU, and Japan) absorb 80%-85% of China's exports (about 2.8 to 3 trillion U.S. dollars), with ASEAN alone absorbing a share equivalent to China's exports to the U.S. (about 500 billion to 600 billion U.S. dollars). Since 2021, ASEAN has surpassed the EU as China's largest trading partner. Global trade growth (according to WTO/IMF data, approximately 3%-4% in 2025) may annually redistribute 80 billion to 120 billion U.S. dollars of exports to non-U.S. markets, compensating for 15%-25% of the loss within a year. Despite the slowdown in global economic growth, China's 4.8% growth in the third quarter of 2025 and 5.2% growth so far in 2025 highlight China's ability to cope calmly.

On October 30, 2025, President Xi Jinping of China met with President Donald Trump of the United States in Busan. Ministry of Foreign Affairs

According to the record provided by the Chinese Ministry of Foreign Affairs regarding the meeting between the heads of state of China and the U.S., the Chinese side provided a set of figures, stating that "the growth rate for the first three quarters of this year reached 5.2%, and the growth of China's foreign trade in goods exceeded 4%." The Chinese national leader also pointed out that this was a result achieved despite overcoming various challenges at home and abroad, and it was very difficult to achieve. In a way, the Chinese national leader was actually subtly informing President Trump that the Chinese economy had withstood the tests of Trump's tariffs and other measures aimed at hindering China's development.

Domestic Integration and Global Expansion

Contrary to the U.S. expectations, the trade war did not hinder China's modernization process. The "dual circulation" strategy (prioritizing domestic market development while expanding international trade links) enhanced its structural stability. Investments in technology fields (such as domestic chip production) and green energy fields (such as solar panels and battery mineral supply chains that account for 70%-80% of the global market) maintained the momentum of industrial development. Since 2018, China's R&D expenditure has grown by 10% annually, comparable to the U.S. level. China has also surpassed many Western competitors in the fields of electric vehicles and artificial intelligence, with companies like BYD and Huawei leading globally.

Globally, China has established a diversified trade network, reducing its dependence on the U.S. The Belt and Road Initiative and the signing of the Regional Comprehensive Economic Partnership (RCEP) have deepened China's connections with ASEAN, Africa, and Europe. Since 2020, trade with non-U.S. markets has grown by 5%-7% annually. Recent initiatives, such as Airbus starting its second A320 assembly line in Tianjin on October 22, 2025, and possibly securing a 300-plane order, indicate that when the U.S. issues threats like restricting Boeing exports, China can quickly turn to European partners. This adaptability demonstrated by China shows the world that the U.S. is nothing more than a "paper tiger" - loud but toothless.

American Domestic Vulnerabilities: Wrong Strategy

The U.S. economy, worth 28 trillion U.S. dollars, faces numerous structural weaknesses, and the trade war only highlights rather than eliminates these weaknesses. According to data from the U.S. Department of Agriculture in 2023, over 60% of U.S. working-class families (according to a PNC Bank survey in 2025, the exact number is 67%) are "month-to-month" families. 20% to 25% of young renters cannot afford three meals a day to pay rent, and 13.5% of families face food shortages. These trends have not improved by 2025. Private debt has surged to 17.8 trillion U.S. dollars (data from the second quarter of 2025), with auto loan delinquency rates as high as 5.0% (defined as overdue by 90 days or more), and credit card delinquency rates also reaching 3.05%, close to the peak of the early 2010s. These indicators reflect systemic pressures faced by the U.S. society: stagnant wage growth, high living costs, and an urgent need for social security system improvements.

The revival of the U.S. manufacturing sector has not been realized. Since 2010, manufacturing jobs have remained at about 13 million. Although tariffs have been implemented since 2018, some specific industries have only seen a 1%-2% growth, but at the cost of higher input costs. The rise in car loan delinquency rates is partly due to increased car manufacturing costs caused by the imposition of tariffs, which well illustrates this feedback loop. The Smoot-Hawley Tariff Act of 1930 provides historical lessons: trade barriers lead to a decline in global demand, thereby deepening economic hardships.

Supply Chain Vulnerabilities: Strategic Mistakes

The U.S. reliance on raw materials from China puts its key industries at risk of supply disruption. In the energy sector, China's dominance in solar panels (75%-80%) and battery minerals (70%-80%) supports the U.S. clean energy goals. If the supply is disrupted, the installation of solar panels in the U.S. could decrease by 20%-40%, and battery costs could increase by 30%-50%, leading to the suspension of projects worth 100-200 billion U.S. dollars. Overall, these raw material disruptions could reduce the U.S. GDP by 0.5%-1% (about 1500-3000 billion U.S. dollars) and increase the inflation rate by 1%-3%, as well as the unemployment rate by 0.3%-0.8%.

Rare earth elements (REEs) highlight the U.S.'s structural weaknesses. China controls 37%-50% of the global rare earth reserves (44 million tons) and 85%-90% of the refined processing capacity. High-purity rare earth processing is essential for the development of industries such as artificial intelligence, electric vehicles, and defense. The stricter export licensing conditions announced by the Chinese Ministry of Commerce on October 9, 2025, could severely impact the U.S. supply chain, as China directly or indirectly meets 70%-80% of the U.S. demand for rare earths.

The U.S.-Australia rare earth transaction (agreed on October 20, 2025, totaling 8.5 billion U.S. dollars, with initial contributions of 1 billion U.S. dollars each) is merely a symbolic gesture, with limited short-term impact, and its mid-term effects remain questionable. This transaction aims to expand rare earth mining and develop the refining and processing segments. However, due to limitations in infrastructure and expertise, despite Australia's 4%-5% share of global rare earth reserves, its immature processing capabilities (Lynas Corporation providing non-Chinese rare earth products for the first time in May 2025) may not achieve large-scale production within 10 years.

MP Materials' rare earth mine in Mountain Pass, California, USA. Source: Reuters

The agreement between the U.S. and Japan mainly focuses on the processing segment, but Japan's own supply of raw materials is negligible, limiting its processing capabilities. The challenge the U.S. faces in rare earths lies in achieving global standards in efficiency across the entire rare earth supply chain, from raw material extraction to processing. China has already mastered the relevant technologies and processes, possessing the high-level processing capabilities required for many downstream applications (such as semiconductors).

The U.S. anger upon learning of China's announcement on October 9, 2025, regarding increased requirements for rare earth exports reveals deep-seated and widespread vulnerabilities in its economic system. Months earlier, China had already raised licensing requirements for dysprosium exports, signaling the problem. China's actions expose the fundamentally unequal reality between the U.S. and China: the ability to obtain and produce critical resources is ultimately more important than the ability to issue financial instruments (such as the dollar).

Reports indicate that approximately 41% of U.S. weapons and defense infrastructure rely on semiconductor supplies from China; additionally, 91% of U.S. naval weapons contain key minerals, whose supply also depends on China's supply chain. Other reports estimate that up to 78% of U.S. weapons depend on raw materials supplied by China. In short, if the upstream supply of critical materials is cut off, the U.S. defense-industrial complex, which is the core of its military power projection capability, will be unable to maintain production. Without China's rare earth supply, the U.S. defense-industrial complex would face severe constraints, limiting its operational capabilities in ongoing conflicts (especially in the Middle East and Europe) and potentially weakening its ability to respond to conflicts in other regions.

China's management of rare earth resources involves introducing an export licensing system rather than implementing a direct ban. This approach allows Chinese regulatory authorities to closely monitor users and usage, and restrict buyers from using rare earth resources for military purposes. The licensing system allows for civilian and humanitarian uses of rare earth exports, with military use being prohibited in principle. Between these two extremes is a broad area known as "dual-use," which needs to be defined. The current negotiation situation is that China will suspend the implementation of the rare earth export licensing system for 12 months while studying and improving the specific execution methods for the future licensing system. In essence, this means China can "turn on" or "turn off" the implementation of the licensing system at any time.

Finance: China's Ace Card

China holds 731 billion U.S. dollars in U.S. Treasury bonds and 1000 billion to 1500 billion U.S. dollars in U.S. dollar reserves, which gives it significant influence. If trade between China and the U.S. were to stop, the demand for capital circulation would decrease, and the risk of U.S. dollar depreciation (loss of 73 billion U.S. dollars if the price drops by 10%) would become negligible. Although China is unlikely to sell all its U.S. bonds, the threat of small-scale sales or media signals could cause U.S. bond yields to rise by 0.2%-0.5%, increasing the U.S. debt cost by 20 billion to 50 billion U.S. dollars, and causing the U.S. dollar to depreciate by 2%-5%, thus exacerbating domestic inflation in the U.S. This not only increases the U.S. fiscal pressure (6% of GDP deficit, 33 trillion U.S. dollars in debt), but also weakens people's confidence in the U.S., while China would shift its investments to gold and the euro, accelerating the de-dollarization process globally.

In this situation, the Federal Reserve might take intervention measures, but doing so could lead to an economic recession, possibly reducing the U.S. GDP growth rate by 0.5%-1% in 2026. However, as analysts have pointed out, this would cause China's assets to depreciate (a loss of 70 billion U.S. dollars if the price falls by 10%), and could trigger retaliatory actions from the U.S., such as sanctioning Chinese banks or freezing China's assets.

Although these are facts, there is still an issue. In the absence of trade between the two countries, these deterrent measures would lose their significance. Because the tariffs have severed economic ties between the two countries, the losses from currency depreciation "overall became meaningless," as these assets no longer hold strategic value for trade re-circulation. Bank sanctions? When those Chinese banks no longer handle U.S.-related business, such sanctions become meaningless.

Even so, China is unlikely to actively pull the trigger. Simply holding a threatening card without revealing it is sufficient to have an impact. Some subtle signals (such as official media implying a small-scale sale of U.S. bonds worth 10 billion to 20 billion U.S. dollars) could disrupt the market, causing yields to rise by 0.2%-0.5%, and the U.S. dollar to depreciate by 2%-5%, without causing losses.

This brinkmanship strategy will force U.S. policymakers to make concessions, preventing the situation from worsening further, while giving China the opportunity to diversify its foreign exchange reserves into gold, the euro, or commodities, further advancing the de-dollarization process in BRICS trade. Regardless, China does not need to be seen as inciting market volatility. China has always been a responsible international actor and will not engage in actions that could damage its reputation and destabilize the market.

The U.S. Dilemma and Its Global Impact

Trump's claim that "the U.S. can easily win the trade war" has completely collapsed. The U.S. has not achieved the revival of its manufacturing sector, while China's technological rise continues. The U.S. dilemma lies in the fact that the tariff war has worsened domestic problems (increased living costs for ordinary people, increased family economic pressure), yet the U.S. has paid this price without forcing China to comply. From a global perspective, the U.S. actual actions are far less powerful than its threats, as allies are adjusting strategies (European Airbus has benefited from this), and emerging market countries are taking steps to mitigate losses and diversify their interests. The risk of fragmentation is increasingly evident, with fragmented supply chains and the trend toward de-dollarization posing threats to the U.S. economy's efficiency and its influence.

For Americans, policies driven by nostalgia for the old era of economic hegemony must give way to pragmatic engagement, including trade cooperation and labor investment, to avoid deeper poverty in U.S. society. For the rest of the world, the resilience displayed by China in this contest heralds the arrival of a multipolar world, where the U.S. no longer holds global hegemony.

The talks held in Kuala Lumpur between China and the U.S. and the subsequent statements after the summit between the two country leaders show that people are leaving the old world behind and adapting to the realities of the new world. The U.S. no longer has the ability to set conditions unilaterally, especially not towards China. The Chinese side clearly conveyed this message in the high-level strategic dialogue between China and the U.S. in Anchorage, Alaska in 2021, and now it has shifted from words to actions.

Certainly, there will be many people in the U.S. who try to resist this historic change and block the trend towards a multipolar world. There is a possibility of reversals in the future, which seems to be a prominent feature of the Trump administration. However, there is no doubt that the era of "peace under American rule" has come to an end. China's performance over the past nine months has shown another more desirable path. China has issued an invitation, hoping that the U.S. can integrate into the collective of all nations as a "normal country," rather than continuing to stubbornly cling to the dangerous fantasy of being an "exceptional country." If the U.S. can accept this invitation, not only will the people of the world benefit, but the American people will also benefit.

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