Tit-for-tat tariff hikes have halted (for now) at 145 percent on Chinese imports into the U.S. countered by 125 percent levies on American goods bound for China. But the ongoing trade war shows no signs of resolution. The White House has already issued new threats raising tariffs even further – potentially to a staggering 245 percent – “as a result of China’s retaliatory actions,” and has not ruled out that countries – from neighboring Latin America to Europe – may soon have to choose between Beijing and Washington. Chinese President Xi Jinping has vowed that China would “fight to the end.”
The two economies are deeply interconnected, though. In 2024, the U.S. imported $462.5 billion in goods and services from China and exported $199.2 billion, resulting in a trade deficit of $263.3 billion. American companies have built supply chains that rely on thousands of Chinese factories — highlighted by the recent decision to exempt smartphones, computers, and other electronics from tariffs. Additionally, China holds about $760 billion in U.S. Treasury Bonds, making it America’s second-largest foreign creditor after Japan. To gain insight into the Chinese perspective on this trade war, Reset DOC has reached out to Professor Shaun Breslin, Director of the European Hub for Contemporary China.
Chinese Foreign Ministry spokesperson Mao Ning downplayed Trump’s tariff threats by quoting Mao Zedong: “America is just a paper tiger,” she remarked. Is the People’s Republic of China (PRC) truly ready for a full-scale trade war with the United States?
The Chinese knew that, regardless of who won the U.S. presidential election, it wasn’t going to be easy for Beijing. After all, Biden and the Democrats hadn’t exactly been soft on China – the Biden administration had already imposed three technology export bans. There was a general expectation that the rhetoric would intensify and that some sort of trade war would resume. But I don’t think they were prepared for this level of tariffs — or this level of global uncertainty and inconsistency. On that level, they were probably as prepared as anyone could have been.
At the same time, the Chinese Communist Party (CCP) must present itself as standing up for China’s national interests in what it portrays as a hostile international environment. The reference to the “paper tiger” evokes the idea that even in the face of something as extreme as a nuclear war with the U.S. (a phrase first used in 1946 to describe American nuclear threats, Ed.), the PRC would not be defeated. Of course, any trade war will have an impact, but China can survive.
What kind of economic “weapons” does Xi Jinping have against Trump?
One of Xi Jinping’s biggest “weapons” is American consumers and American manufacturers. In the early 2000s, about half the U.S. trade deficit with China was driven by American companies: goods made in China but sold under American brand names. While that proportion may not be as high today, a significant share of what America imports from China is still produced by American manufacturers, benefiting American consumers. On one level, Xi Jinping and the Chinese leadership don’t need to do much, they simply need to allow American consumers and producers to have Trump’s ear.
There are other levels Beijing is already pulling — and could pull further. Reciprocal tariffs, for instance, were particularly important during the first Trump administration, particularly targeting American agricultural exports principally from Republican-voting states. China has also moved to restrict exports of critical resources like rare earths, which the U.S. and other economies heavily rely on. And then, of course, there are U.S. Treasury bonds. Collapsing the American bond market would be an act of self-harm for China too, because it would crash the global economy — but the mere threat of using it, or even taking steps in that direction, is enough to send a reminder: the global economy isn’t solely for the U.S. to dictate.
The PRC also signaled that it remains open to dialogue. What, in your view, could actually “rebalance” the trade relationship and lead to de-escalation?
There is a desire to talk — if not to return to the old status quo, then at least to pull back from some of the current extremes. De-escalation is possible, but it really comes down to American politics — and specifically, who has Donald Trump’s ear. Peter Navarro’s influence on Trump is key, though Elon Musk’s recent criticism suggests Navarro’s grip may be weakening. That’s where any real change would have to come from. I don’t think there’s anything the Chinese can do — they’re not going to back down. They won’t reverse course unless there’s some kind of offering, reciprocal treatment, or serious talks.
Honestly, it’s difficult to imagine these levels of reciprocal tariffs still being in place six months from now. God knows what would happen to the global economy if they were — and what would happen to American Christmas presents, because Walmart would have a very hard time keeping its prices down.
Are we witnessing a long-term structural economic “decoupling” between the U.S. and China?
There’s now a longer-term, bipartisan position in the U.S. that views China as a problem that needs to be addressed, and we’re never going back to the old days. Hopefully, this current escalation — the super-high tariffs — could be short-lived, but a gradual separation seems far more likely. It’s less about total “decoupling” and more like tectonic plates slowly drifting apart, with both sides seeking greater security. For its part, China is very focused on reducing its vulnerabilities — producing more domestically and relying less on foreign markets and critical technology imports, which are too easily disrupted, even without political intent. The PRC is trying to “de-risk” from the U.S. and the EU, and that process has been underway for some time.
Since the first wave of tariffs in 2018, China’s economy has been hit by deflation, record youth unemployment, and a protracted real estate crisis. What’s your assessment of the current state of the Chinese economy?
First, there are the immediate, visible problems. The real estate crisis is very real for ordinary people — if your life savings are tied up in a house and its value drops, it hits hard. Youth unemployment and broader job insecurity are also serious challenges. Then there’s the long-term demographic issue.
The CCP faces two massive challenges. One is the transition to what they call “new quality productive forces.” The era of high growth for growth’s sake is over. They want to move toward a more sustainable, technology-driven economy. But every transition leaves people behind, and millions are still working in older industries. Turning the economy around — shifting from relying on more money and labor to focusing on innovation, and from quantity to quality — is slow and difficult.
As for the economy itself, it’s stumbling along—not collapsing, but not thriving either. There’s more stimulus: encouraging consumption and issuing more bonds to let local governments kick their debts further down the road. But the underlying issues, like mounting local government debt, haven’t been fundamentally addressed. They’re just being postponed. And trying to boost consumption is difficult when people feel insecure about the future.
Economic insecurities in China are closely tied to the CCP’s broader need for political and social stability…
For the first time in generations, young Chinese don’t assume their future will be better than their parents’. Since the end of the Mao era, each generation expected a better life — more opportunities, more freedoms, more prosperity. Now, a generation — maybe even two — is growing up without that hope. Governing a population with no belief in upward mobility is very different from governing one that expects progress. That’s not just economics; it’s a profound societal shift, and many people in China recognize it’s a looming challenge for the Party.
Are there opportunities for the CCP in this trade war?
The trade war boosts the CCP’s nationalist credentials, framing the U.S. as a clear enemy trying to block or destroy China’s growth. Second, the Party needs to shift the public’s understanding of what constitutes good performance. For decades, it was all about GDP growth. Now, they must pivot to something else — like the “quality” of growth — but changing the benchmark is difficult after promoting it for so long. This partly explains the increased emphasis on ideology: reinforcing Party control and pushing nationalist rhetoric harder at home. Third, the trade war accelerates tensions that were already present due to the shift in China’s economic model. It acts as an amplifier. And in extraordinary times, extraordinary measures can be justified. The Party can blame external forces — the U.S. — for domestic struggles, using that narrative to tighten control.
What’s at stake?
What’s always at stake in a one-party system is the system itself. There’s no second chance through elections. The Party must constantly reinvent itself from within. It’s incredible when you consider that the same Party that led the Cultural Revolution under Mao is the same Party that opened up under Deng Xiaoping. Reinvention is key to its survival, though it undoubtedly makes governing more challenging. Still, the CCP’s resilience and the ability to frame an external enemy are powerful tools that help it adapt.
The Economist recently published an op-ed, “How America could end up making China great again,” arguing that Trump’s tariffs could end up redrawing Asia’s geopolitical map in China’s favor.
The trade war gives China the opportunity to position itself internationally as the stabilizer, the champion of globalization and free trade, while framing the U.S. as the disruptor. Xi Jinping made exactly that case at the China-Africa Cooperation Forum.
Focusing on Asia, this shift is already taking place. Xi Jinping is currently on a charm offensive, touring Southeast Asia and strengthening ties. I think the South Korea-Japan case is particularly interesting given the deep security tensions between China and Japan, and the strong resentment South Koreans still have toward Japan. Yet here we are — maybe nothing will come of it in the long term — but at least for now, economic pragmatism is driving dialogue that probably wouldn’t have happened otherwise. If America is no longer seen as trustworthy and reliable, does that make China trustworthy? Probably not, but it does makes it, perhaps, a bit more inevitable.
Should the EU be more concerned about a wave of Chinese goods diverted from the U.S. market, or could this open up new opportunities for partnership with Beijing?
We’ll have to see what happens with Europe. The Chinese are very keen on using this moment to reset relations. But I think many in China underestimate the depth of European concern about China. They tend to assume Europe’s attitude is just a reflection of U.S. influence — that if Europe distances itself from America, it will automatically draw closer to China. They don’t fully grasp that there are homegrown, indigenous concerns within Europe and the EU about China’s rise, concerns that have nothing to do with Washington.
Still, there’s definitely a sense in Beijing that this is an opportunity.
Cover photo: Shipping containers are seen at a port in Nanjing, in eastern China’s Jiangsu province on April 8, 2025. (Photo by Stringer / AFP)
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