US President Donald Trump and Chinese President Xi Jinping (習近平) were born under the sign of Gemini. Geminis are known for their intelligence, creativity, adaptability and flexibility. It is unlikely, then, that the trade conflict between the US and China would escalate into a catastrophic collision. It is more probable that both sides would seek a way to de-escalate, paving the way for a Trump-Xi summit that allows the global economy some breathing room.
Practically speaking, China and the US have vulnerabilities, and a prolonged trade war would be damaging for both.
In the US, the electoral system means that public opinion is crucial. If the tariffs evolve into a long-term war, inflation would likely follow, reducing public support and jeopardizing Trump’s prospects in next year’s midterm elections. Moreover, high reciprocal tariffs have already triggered a backlash from the EU and China, including selling off US Treasury bonds in retaliation. This would lower bond prices, sharply raise yields and significantly increase interest payments on US government debt.
Tariffs could also lead to inflation, making life more difficult for low and middle-income groups in the US — again, a political liability for Trump. If inflation takes hold, the US Federal Reserve would be slower to cut interest rates, and higher borrowing costs would increase pressure on car loans, student loans, credit cards and mortgages, eroding support among middle-class voters.
In China, although the government has claimed that Chinese can “eat dirt or grass,” and are not afraid of a prolonged trade war, the reality is more complex. After 30 years of economic prosperity, Chinese are used to relative affluence and would struggle with austerity. If the trade war halts China’s economic growth and drives up unemployment, the risk of civil unrest becomes a serious concern.
When Japan’s financial bubble burst in the 1990s, its per capita income was US$50,000, and its pension, insurance and healthcare systems were already well established. Despite entering a “lost” 30-year period, Japan maintained social cohesion. In contrast, China’s current per capita income is only US$13,000, and its social safety nets — retirement, healthcare and labor insurance — are still underdeveloped. If the economy stagnates, the potential for unrest should not be underestimated.
China is also facing a real-estate bubble and a local government debt crisis, while domestic consumption is weak. The nation has relied heavily on exports, particularly to the US. While direct exports to the US have declined in recent years, much of the trade has been rerouted through Southeast Asia, India and Mexico by manipulating the country of origin. If this loophole is closed, and domestic demand and exports shrink, China might fall into an even deeper economic crisis.
Given that the US and China have structural weaknesses, finding an off-ramp and resuming negotiations would benefit both parties by containing the trade war.
However, Trump’s tariff policies have clear targets, but lack strategic execution, making it difficult to force China to the negotiating table. Pressuring China involves more than encouraging high-tech companies to relocate to the US and create jobs. The more urgent issue is inflation in consumer goods — food, clothing, housing, transportation and entertainment. Without alternatives to Chinese products, the US risks seeing inflation that would undermine its ability to sustain a long-term trade war.
To fill this gap, the US needs help from Taiwan, South Korea and Japan. Taiwan has a comprehensive industrial supply chain and cost-reduction strategies; Japan has raw materials, advanced technologies and global supply coordination through its five major trading companies; South Korea’s strengths in consumer electronics, semiconductors and automobiles are also critical to US interests. A trilateral alliance with increased investment in the US could help replace Chinese goods and support reindustrialization of the US — key to weakening China’s competitive advantage.
If the US fails to leverage the strengths of these three allies and continues to do it alone, trade policy alone would not be enough to restrain China and could trap the US in a no-win situation.
If economic and trade strategies stall, Trump, as a businessman prioritizing the interests of the US, might resort to geopolitical maneuvers and the threat of military conflict to shore up the US dollar and US Treasury bonds. This could involve using flashpoints such as Israel and Iran, North and South Korea, or cross-strait tensions as bargaining chips, raising global political and economic risks — something Taiwan, Japan, South Korea and the world would rather avoid.
Therefore, based on shared interests, Taiwan, Japan and South Korea should proactively engage with the US to shape a comprehensive strategic framework. Doing so would not only help Trump address blind spots in his trade war, but also provide the three nations with sustainable economic pathways and political stability.
Wang Jiann-chyuan is vice president of the Chung-Hua Institution for Economic Research.
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