When two elephants fight, it is the grass that suffers."At the world's most expensive poker night, Trump threw down tariffs like a man betting with someone else's chips. Xi raised, ever the oriental gentleman who cares more for face than chips. Trump, never one to back down from a bluff, or a brawl, doubled down like a casino regular who doesn't read the odds, only headlines.
Old African proverb
More than 100 countries have now reached out to the White House to negotiate. With the stroke of a tariff pen, Trump has got these countries to the negotiating table. If Trump had relied on FTAs alone, the US will still be waiting in line behind bureaucrats and trade lawyers one hundred years from now. Say what you like of Trump, he gets the job done, or at least for the moment, he has the chance of getting the job done in relative quick time.
Trump being Trump, revels in characteristic un-presidential glee in telling to the face of his detractors that the countries are "coming to kiss his ass". It's the kind of anti-intellectual trash talk that earns him the epistemic snobbery of the elitist class. For the Chinese, it's disrespect that cuts deep into their psyche of a century of humiliation (百年国耻) in their history. The Great Hall of the People must have reverberated with thunderous "never again!".
So the table is now left with two players. Who will win the tariff war? All sorts of pundits including industrialists and economics Phds have offered their opinions. I see majority of Singaporean commenters have their money on China, no doubt conditioned by exposures to the zeitgeist of a US embroiled in economic and cultural decline, massive debt, dysfunctional judiciary, one half of the country wanting to make the country great facing the other half wanting to destroy it, and fractious politics, compared to a united rising China capable of impressive massive projects in quick time, technological advancements, the E-Yuan digital payment system replacing USD and SWIFT
But is the reality so clear cut? Both sides have their strengths and weaknesses. As in a battle scenario, let's do a SWOT analysis. Instead of looking at the strengths and weakness of each country, let's examine by issues, this way there is less repetition.
Consumer strength:
The U.S. has one of the world’s largest and most affluent consumer bases. In 2023 Americans spent US$19 trillion on goods and services. Global output of goods and services in 2022 was US$56 trillion. Americans are responsible for 34% of the world's consumer expenditures. despite only comprising 4% of world population. The US is the consumer of last resort to the world. It is the driver of demand for the world's goods and services. Chinese manufacturers rely heavily on American consumers to buy their exports.
It's generally said millions of Chinese have been lifted out of poverty. Yes China now has a huge middle income demographic which is a fundamental pillar of stability. However, it has been unable to increase domestic consumption due to two problems. One is a huge disparity of income distribution between the rural and urban population. A huge rural population do not have high disposable income. The urban middle income class has been hit hard by the real estate industry collapse and caught in mortgage debt trap. Furthermore, China has no adequate social safety net and no national hospitalisation and pension schemes. This has left the huge middle income base with a very low propensity to consume. The government had tried unsuccessfully to switch from export dependency to a domestic economy for years. The US export market remains very important to China's economy.
Score : 1 for US.
Import dependency:
This is the real heart of the trade war debate: it's not just about the numbers, but about what is being traded. The rhetoric I hear often from China hawks is if Xi Jinping shuts down all exports to the US, the Americans are dead. Let's unpack this.
Main product US buys from China which are hard to replace:
Electronics - Eg. phones, computers, TVs. China is the world’s electronics assembly hub. U.S. companies like Apple depend heavily on Chinese factories. Moving supply chains is slow, expensive, and complex.
Machinery & Electrical Parts - These are embedded in almost everything from cars to data centers. Chinese supply chains are highly efficient.
Furniture, Toys, Clothing - China’s scale and cost advantages are tough to beat. Alternatives (Vietnam, Bangladesh, Mexico) exist, but production shifts take years.
Main product China buys from US and whether it is easy or hard to replace:
Soybeans, Corn, Pork - China can switch to Brazil, Argentina, and local alternatives if necessary. That’s exactly what happened during the height of the Trump 1.0 trade war.
Crude Oil, LNG (natural gas) - China has global alternatives: Russia, Middle East, South America. Energy markets are liquid and globally priced, so substitution is easier.
Aircraft (Boeing) - Harder to replace (Airbus is the only real alternative) — but China could slow purchases or delay contracts as leverage, which in fact, it has already announced delayed delivery.
High-tech Equipment and Semiconductors - Difficult to replace, especially for advanced chips and design software. U.S. controls choke points like Nvidia GPUs and semiconductor design tools (EDA). This gives the U.S. real leverage over Chinese tech.
Short term:
China is in a stronger position because it exports mass-market goods that the U.S. can't quickly replace without hurting its own consumers. Americans cost of living will rise.
Score : 1 for China
Long term:
The U.S. holds the high ground, especially if it uses export controls on technology (semiconductors, AI chips, aviation). These are strategic chokepoints that hurt China more than tariffs hurt the U.S. In the longer run, reshoring bears fruit and manufacturing returns to US, lowering tariff-related costs.
Score : 1 for US.
Note on rare earth:
There is an often lauded claim China will destroy the US once it bans export of rare earth which are several metal elements needed in high end electronic goods. China is the largest exporter of processed rare earth elements. However it imports a sizeable quantity of unprocessed rare earth from US. Rare earth is actually not rare but its mining has environmental issues which is why advanced countries with strict regulations do not produce them. The US is probably just one year away from self-sufficiency. See my earlier blog on rare earth here
Export dependency:
China exports US$440 billion of goods to US which is 14% of their aggregate export and 2.6% of GDP.. These are predominantly in high end electronic goods and parts which means there is no ready alternative markets. For the factories that produce these, their US buyers are probably the mainstay of their business. Banning sales to US, or the 125% tariff, means shutting down. To continue means loss of economies of scale. These are huge operations, so the impact on unemployment will be catastrophic. There will also be serious repercussions in the whole domestic supply chain.
China is an export-based economy with a weak domestic consumption. It's 14% export to US is a crucial factor although publicly they try to play down the importance of the US market.
US exports US$154 billion to China which is about 8% of total exports and 0.4% of its GDP. The major exports are soya beans, crude oil and gas. The market for oil and gas is huge so it is not too big a problem for the US. In the previous tariff war, soya bean farmers needed massive subsidies to tie over. In Trump tariff war 2.0, if EU cave-in, which they surely will, then their removal of tariffs against US agricultural products means American farmers have a ready alternative market. US also sells airplanes and spare parts to China. US has the edge since there is basically no competitor. China may delay delivery for new planes, but spare parts must continue for flight operation. Boeing can always work around the delivery dates because lead time is long and their books are full.
Score ; 1 for US
Manufacturing :
China is a manufacturing powerhouse. It has deep supply chains, cheap labor (though rising), advanced automation in factories, and infrastructure making it difficult to replace in global manufacturing.
The US relies on Chinese manufacturing for everything from electronics to consumer goods. The US hollowed out their manufacturing capacity long ago. Reshoring of manufacturing is Trump's objective but there is a long time gap to realise the ambition. This means in the short term, US has to rely on imports of manufactured goods and parts. Tariffs will raise prices for U.S. consumers in the short term. US cost of living will be hit hard.
Short term : Score 1 for China.
Long term :
Assuming US reshoring works out, its high labour cost, shortage of labour and strength of USD may not make their products competitive. If tariff remains to protect domestic production, the American consumers suffer.
Score : Unknown.
Technology :
US dominates in advanced sectors: semiconductors, software, aerospace, AI, and biotech. The U.S. controls many of the tech choke points China depends on (e.g., advanced chip designs, operating systems). China is strong in application, US still holds the edge on the IP side.
Score : 1 for US
Dollar hegemony :
The U.S. dollar is the world’s primary reserve currency, giving America financial leverage that no other country has, especially in global transactions and sanctions. It has the ability to ride out a storm in the financial markets that these tariffs may cause.
Score : 1 for US
Weaponisation of Treasury securities :
China holds about US$785 billion in US Treasury securities in its foreign reserves. This is the second largest holding after Japan. There is much talk China may weaponise this by dumping in the market to destroy the USD. It is a double-edged sword that will hurt not just both sides but the global community. China's sovereign wealth funds China Investment Corp has a portfolio of US$1.33 trillion (Mar 2025) and Central Huijin Investment Ltd has US$0.9 trillion. Although China has for a few year now made moves to divest from USD, it is currently still holding massive USD assets. Causing a USD devaluation will not only mean massive losses for China, but a cheaper dollar will make US exports more competitive.
China may continue to unwind their dollar holdings but not in a massive dump. Although China has made strides to get its trading partners to price products in RMB, in global trade, USD still dominates, and in the financial derivatives markets which are several times bigger than the markets of real goods, USD dominates and RMB is insignificant. What this means is China cannot decouple from the USD. It still has to maintain substantial USD in its foreign reserves to provide liquidity.
Score : 0-0
Debt Load :
This lies at the heart of global power economics. We examine the debt situation and assess the vulnerability of the countries to a tariff war.
The US has a massive US$36 trillion in national debt which is now close to 133% of GDP. The debt is in the form of Treasury securities which are held by Federal Reserve (built up from their QE exercises), US banks and pension funds, foreign governments, other investors. For as long as USD remains the major world reserve currency, and the papers provide a reasonable interest, demand will always be there. Let me explain the nature of the beast which is something most people do not understand. In international trade, there will be countries with surplus vs the US. Because of their trade surplus the country sucks in USD. This reserves will be deployed buying up US assets, which may be real estate, US companies, or Treasury securities. To put it another way, the US government creates the asset in the form of securities for the surplus countries to park their USD reserves. This is the inherent weakness in the existing system of international trade. The country whose currency is used as world reserves currency, provides the equilibrium for the trade imbalance that must surely arise. Had it not been for Treasuries, US physical assets would have been gobbled up by foreigners, including the Statue of Liberty. There is much talk about dedollarisation, but there is no end in sight. In the short to medium term, US debt does not present a problem with regards to the tariff. In fact, if the tariff war brings global apprehension as to the uncertainties, it drives investors to US Treasuries, not away from it.
The US has a massive US$36 trillion in national debt which is now close to 133% of GDP. The debt is in the form of Treasury securities which are held by Federal Reserve (built up from their QE exercises), US banks and pension funds, foreign governments, other investors. For as long as USD remains the major world reserve currency, and the papers provide a reasonable interest, demand will always be there. Let me explain the nature of the beast which is something most people do not understand. In international trade, there will be countries with surplus vs the US. Because of their trade surplus the country sucks in USD. This reserves will be deployed buying up US assets, which may be real estate, US companies, or Treasury securities. To put it another way, the US government creates the asset in the form of securities for the surplus countries to park their USD reserves. This is the inherent weakness in the existing system of international trade. The country whose currency is used as world reserves currency, provides the equilibrium for the trade imbalance that must surely arise. Had it not been for Treasuries, US physical assets would have been gobbled up by foreigners, including the Statue of Liberty. There is much talk about dedollarisation, but there is no end in sight. In the short to medium term, US debt does not present a problem with regards to the tariff. In fact, if the tariff war brings global apprehension as to the uncertainties, it drives investors to US Treasuries, not away from it.
On the other hand, China has a very serious debt problem which no one talks about, not even Jeffrey Sachs in his many public engagements. China is poor on data which are estimates. It has a domestic debt of about US$36 - US$44 trillion which is about 211% to 259% of GDP. These debts are carried by :
- Local Government Financing Vehicles (LGFVs) - US$15-US$20 trillion.
- State-owned enterprises - US$9-12 trillion.
- Shadow banking + corporates (huge real estate developers) - US$12 trillion.
Unlike the US debt, China's debt is problematic. The LGFVs, state enterprises, shadow banking, real estate developers, all depend on cash flow from land sales, exports, and economic growth — all of which tariffs directly threaten. Since all these are domestic debt, the government can print RMB. The local government cannot do that, it will have to be Public Bank of China. Large scale bail out will cause Yuan devaluation (inflation), capital flight and threaten financial stability.
To assist in comparing vulnerability, following bullet points help:
* Debt size :
US - $36 trillion.
China - $36-$44 trillion (RMB denominated.
* Debt structure :
US - centralised.
China - fragmented (local govt, corporates, shadow babking.
* Currency control :
US - Issues world reserves currency.
China - Prints RMB, less globally accepted.
* Crisis flexibility:
US - can borrow easily in a crisis (Flight to safety effect).
China - limited capability, relies on domestic savings, or print RMB.
* Trade exposure:
US - export is only 11% of GDP.
China - export is 20% of GDP. China’s economy is almost twice as export-dependent as the U.S. So when tariffs go up, the impact on factories, jobs, local tax revenue, and debt repayment is much more severe in China than in the U.S.
In a tariff war, the U.S. debt is a long-term fiscal sustainability question.
China’s debt is a short-to-medium term financial stability risk.
Score : 3 for US
Politics:
US domestic division can weaken long-term strategic focus, especially on foreign policy consistency. Trump faces a Democrat opposition willing to burn the house down to see him fail and a dysfunctional judiciary that tries to checkmate his every move.
The Chinese government can act quickly and decisively on economic policies — subsidies, currency controls, tax breaks — without the gridlock seen in democracies.
The Chinese government can act quickly and decisively on economic policies — subsidies, currency controls, tax breaks — without the gridlock seen in democracies.
Score: 2 for China
RESILIENT ECONOMIC STRUCTURE:
A higher service share of the economy can buffer tariff shocks in the export sector.
US - 77% of GDP
China - 53% of GDP
* Goods (industry + agriculture):
US - 20% of GDP
China - 46% of GDP
* Export dependency:
A high export dependency exposes the country to instability from tariff shocks.
US - 11% of GDP
China - 20% of GDP
* Domestic consumption:
High domestic consumption can absorb tariff shocks better. Easier to substitute with domestic production.
US - 68%-70% of GDP
China - 55% of GDP
* Financial sector size:
Strong financial sector can remain stable in the face of financial stress from tariffs.
US - Very deep capital markets, diversified, global
China - Although growing, it is state-heavy.
* Innovation base:
Can control choke points in various sectors of the economy.
US - Mature, leader in tech, AI, R&D
US - Mature, leader in tech, AI, R&D
China - Expanding, tech self-sufficiency drive.
It is not a matter of who dares win, but of the country's economic structure which provides resilience to economic shocks such as tariffs. Do not be influenced by propaganda or rhetoric from many experts, including professors like Jeffrey Sachs. Walk through all these data points listed above and form your own opinion.
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