China's Political Calculus

Seeing the ever-escalating Sino-American trade war from China's political perspective

Trade wars are political wars. Politicians want you to think otherwise, attempting to rationalize trade aggression through economic arguments. On the surface, these arguments are seductive, promising spoils to the winners of trade conflicts through a zero-sum resolution of deeply ingrained economic grievances, But in the end, trade wars are a race to the bottom, with no winners. That is the lesson of the 1930s, and a worrisome portent of what may lie ahead.

The escalating Sino-American conflict is an obvious and critical case in point. For all practical purposes the US-China trade war now boils down to MAGA versus the Chinese Dream, or Donald Trump versus Xi Jinping. Two seemingly intransigent political leaders are locked into battle, fueled by ideological commitments to their respective political bases.

Trump, the so-called dealmaker, attempts to convey a transactional impression that belies any ideological conviction. Yet even if he cuts a deal with China, it will have to be sold to his MAGA base on their terms, as an antidote to the so-called China shock and all of its presumed corrosive ramifications — trade deficits, the hollowing of Smokestack America, the plight of the US working class, America’s fentanyl drug crisis, and on and on. For MAGA extremists, there is no middle ground — any compromise would be viewed as nothing short of capitulation.

The politics are different for Xi Jinping, but no less compelling. Xi’s political contract was sealed with a solemn pledge that he made to the Chinese people in November 2012, shortly after having been appointed as General Secretary of the Chinese Communist Party. On the steps of the National Museum of China, prominently situated on Tiananmen Square in the heart of Beijing, Xi emerged from a massive exhibit, “The Road to Rejuvenation,” and, in the presence of the newly appointed Standing Committee of the Politburo of the CCP, he first espoused what has become known as the Chinese Dream:

“The Chinese dream, after all, is the dream of the people.

We must realize it by closely depending on the people.

We must incessantly bring benefits to the people.

Realizing the great renewal of the Chinese nation is the

Greatest dream for the Chinese nation in modern history.”

Framed around the twin commitments to prosperity and rejuvenation, the Chinese Dream is no less a political anchor to modern China than MAGA is to Trump. It was no accident that this messaging was orchestrated to reinforce the key theme of a museum exhibition that featured China’s extraordinary rise following a “century of humiliation.” From the opium wars and foreign occupation of the mid-19^th century to revolution in the 1940s, to the founding of the People’s Republic of China in 1949, Xi’s statement at the National Museum of China in November 2012 (illustrated below) spoke of a renewal from which there can be no turning back. Modern China’s political calculus flows from this promise.

Even if we in the West, disagree with the principles and tactics of Chinese renewal, we need to take this solemn promise seriously. If anything, Xi Jinping’s commitment to this political contract has deepened over the years, spurring a surge of nationalistic fervor that also has important implications for China’s role in the world at large. In a speech delivered on July 1, 2021, on the occasion of the 100^th anniversary of the founding of the Chinese Communist Party, Xi Jinping essentially operationalized this political contract, warning that, “We will never allow any foreign force to bully, oppress, or subjugate us,” he said, before stressing that, “… having the courage to fight and the fortitude to win is what has made our Party invincible.”

It is in this context that we need to interpret China’s latest promise “to fight to the end” in response to Trump’s tariff actions of early 2025: Two rounds of 10% tariff hikes due to fentanyl, a “reciprocal” penalty of 34%, and another 50% because China just had the audacity to retaliate. And all of that has been piled on the legacy tariffs of around 20% that are a holdover from Trump’s initial tariff hikes of 2018-19. It makes for a grand total of a 124% US tariff hike on China relative to pre-Trump 1.0 norms.

On his Truth Social platform, the US President made it clear that absolutely no retaliation to America’s reciprocal tariffs would be tolerated. After all, Trump implied, reciprocity, no matter how dubious his attempts to measure it, is well justified by decades of America’s economic abuse at the hands of the Chinese. China dared to act, in his view, “ …despite my warning that any country that retaliates against the U.S., … will be immediately met with new and substantially higher tariffs.”

Predictably, Treasury Secretary Scott Bessent, upped the ante by accusing China of escalation rather than admitting the US struck first, claiming, “It was a big mistake, this Chinese escalation.” For China, Trump’s reciprocal tariffs fall well within the “bully, oppress, and subjugation” construct that Xi warned of in his CCP centennial speech almost four years ago. Ultimately, It’s not a question of who is right or wrong. Conflict arises out of the collision course between two very different political mindsets.

When I was in China a couple of weeks ago, I met with a broad cross-section of Chinese officials, academics, and businesspeople. Their views spanned the gamut, from Party hardliners to market-oriented modern thinkers. Discussions were vigorous and open, all under Chatham House rules that prevent me from naming names. But irrespective of where they sit on China’s political spectrum, there was little doubt of their collective conviction. As one of my most liberal thinking Chinese friends said, “China will most definitely retaliate to another tariff attack from Trump.” And that’s exactly what happened when China matched Trump’s 34% reciprocal action with a comparable tit-for-tat of its own.

At the risk of being labeled a panda hugger (again), I will take this argument one step further. The United States has a president who acts out of anger. China has a president who operates less out of emotion and more from the conviction of a strategic discipline that is well anchored in a relatively transparent political contract. You may not like China’s strategy but there is little doubt of its implications for action.

This conflict pits emotional policy tantrums of a volatile US president against the more dispassionate actions of a calculating Chinese leader. They often say that a bully only responds to a punch in the face. If Donald Trump delivers on his latest bluster and at midnight tonight actually adds another 50% to America’s anti-China tariff cocktail, look for China to keep punching back. Like I said, it is a race to the bottom that no one can win. Unless, of course, someone flinches.