Trump 2.0 and China

The US is preparing for a new chapter with Trump as president.

One of the key looming questions is how he would handle China. The US China rivalry has become the most important geopolitical relationship and it will continue to be a major storyline for Trump’s 2ndadministration. Even the wars in Ukraine and Israel are side stories compare to the potential aftermath from the conflict between these two titans.?

Triggered by Trump’s 1st administration, it’s been several years since the US’s hawkish sanctions were placed but China’s economy is yet to collapse.

When the sanctions were placed and China’s growth slowed down, legacy media interpreted it as a sign of the middle-income trap, which is the theory that as wages rise the country loses its competitive edge in manufacturing sectors while struggling to compete with developed countries in high-value-added sectors.??

So far, China has successfully defied this narrative. It is dominating future-defining sectors such as AI, automobile, energy, communication, robotics, and space while still standing as the global powerhouse in low-value manufacturing.

Some people even argue that the slowdown is only temporary and the sanctions actually turned out as an opportunity to China. In response to the US, China underwent an economic transition that may not be immediately profitable but will position China for future success. To become self-sustainable from the US, China has escalated its strategic investment in technologies and domestic growth.

Many countries claim that China is unfairly subsidizing its industries and flooding the world with overproduced goods. Although this narrative is somewhat true, it isn’t fair to blame China for such attempts because most of major economies are doing pretty much the same. They strategically subsidize their key industries and operate at overcapacity so they can export. The only difference is that China does it at a scale nobody can come compete with, not even close.???? ?????????

Ironically, it demonstrates that it will be extremely hard for the world to decouple from China. Even if you want to cut off China from the global supply chain, the reality of the situation is that nobody can offer to fill in the gap. China’s overcapacity might be a threat to competing countries, but if you look at it from a worldwide perspective, it helps the world to maintain affordable supply and fuel innovation. (Of course, there is a remaining question if China will use its increased influence for peaceful purposes, but let’s not discuss it here)

The world’s reliance on China is so deep that almost every industry involves China at some point along the value chain. The world has been trying to diversify their supply chains but all they did was end up relying on China through indirect channels with extra steps. We turned to other low-cost countries such as India, Mexico, and Vietnam but most of the goods they export are still made of components and materials sourced from China. This reorganization only created higher costs and longer lead time which are ultimately passed on to the consumers in the US and its allies.

The cold hard truth is that the market operates around the principle of demand and supply.

The root of the threat is that China builds products on a tremendous scale at affordable cost, and now they are superior even in quality. The only way to fundamentally decouple from China, we must embrace innovations to develop competitive capacity. Political push alone will not be enough to ignore economic realities forever.

Trump has vowed to increase tariffs on Chinese goods to 60%, but this decision could backfire if not executed carefully. The US, and every country that is worried about the rise of China, should prioritize rebuilding an advanced industry base if they want to reclaim their position in the global marketplace.

Not just tariffs, but innovation and efficiency were also key themes of Trump’s presidential campaign. Time to wait for the US’s next moves to realize the ‘Manufacturing Superpower’ he promised.??