In the months since 'Liberation Day' last year - when Donald Trump unleashed a tariff blitzkrieg on imports from everywhere - countries have been speed-dating to form new trade relationships. The European Union finally signed that long-ignored trade deal with South America’s Mercosur bloc. Canada’s Prime Minister Mark Carney took a trip to Beijing. Southeast Asian nations deepened their own pact with China. The global trading system, it seems, is frantically trying to build a new social network while the US sulks in the corner.
Hopes of rebuilding an open trade architecture are probably futile. Global trade is now being shaped by a new imperative: stop China’s export juggernaut and end its lock on strategic supplies - pharmaceutical components, critical minerals, essential chips. The US will remain China’s main opponent, but Europe and others are also rummaging through their policy kits, evaluating tariffs, subsidies, and export controls like they’re shopping for a new trade wardrobe.
The war will come at a cost. Consumer prices will rise as countries block Chinese imports. Manufacturers will face pricier Chinese inputs. Chinese exporters will have a harder time finding markets. And US exporters may find themselves locked out of China’s market. But the biggest risk? China might - as it has before - leverage its near-monopoly on critical commodities to cut off supplies and retaliate.
Trump, naturally, will not manage this well. His scattershot protectionism - raising tariffs with no discernible strategy - and his belligerence toward natural allies guarantee that US trade policy will remain a hot mess until the end of his term. One can only hope the next administration brings some strategic thinking to the fight.
How did the global economy get here? China now accounts for about a third of the world’s manufacturing output, up from just 5% in 1995. Its share of global manufacturing exports rose from 3% to 20%. It dominates over 50% of global exports for hundreds of manufacturing products. Even Germany, with its industrial pedigree, is worried about survival. China’s swelling current account surplus - officially 3.8% of GDP, but up to 5% by some estimates - has become a global threat.
Economists point to a peaceful path: get China to save less and consume more - say, by building a more generous social safety net. That would improve Chinese wellbeing and bolster their sluggish economy without flooding the rest of the world with stuff. But Jason Furman, former chair of the US Council of Economic Advisers, observes that Beijing may be aiming for a different objective: 'maximizing your geopolitical dominance; not the economic welfare of your citizens.'
Governments beyond Washington believe this: China is not merely turbocharging exports to prop up growth; it’s building an arsenal for a trade war. Beijing isn’t exactly denying it. In a 2020 speech, President Xi Jinping argued that 'we must tighten international production chains’ dependence on China, forming a powerful countermeasure and deterrent capability against foreigners who would artificially cut off supply.'
China offered an early taste in 2010, cutting rare earth exports to Japan after a trawler incident. Earlier this year, it punished Tokyo again on Taiwan by curtailing magnet and mineral supplies. Last year, Beijing forced the Dutch government to walk back its takeover of chip maker Nexperia by blocking exports from its Dongguan plant. It also tightened restrictions on rare earths and magnets - critical for fighter jets, submarines, phones, and EVs - to pressure the Trump administration.
China benefited enormously from globalization over the last 50 years. But it seems Beijing didn’t buy the argument that economic integration builds interdependence and shared prosperity. As trade economist Chad Bown put it: 'They don’t want interdependence, they want everybody to depend on them. Their goal was to acquire market power.'
The notion of rebuilding an open, rules-based trading system - possibly around China without the US - cannot survive this strategy.
Cecilia Malmström of the Peterson Institute notes 50 ongoing EU antidumping cases against Chinese imports, up from seven in 2024. Europe has imposed duties on Chinese EVs, solar supply chains, glass fibers, steel cylinders, and more. Mexico, partly at US behest, imposed tariffs of up to 25% on imports from countries without a trade agreement - a move aimed directly at China. The WTO reports over 300 antidumping investigations since 2020 by low- and middle-income countries against Chinese exports.
The hostilities will get messier. The first order for the US, Europe, and others is to build alternative sources of critical commodities - a process started under Biden with subsidies for chip-making capacity and new mineral sources. But it will be slow, tortuous, and dangerous. Developing alternatives for rare earth magnets takes time. China could retaliate by cutting supplies to any country that tries. And many potential allies - like Indonesia with its vast nickel supply - have close economic ties to China they won’t willingly challenge.
There are better and worse ways to do this. Trump’s approach - hitting at allies, protecting industries willy-nilly with no regard to strategic importance - is obviously the wrong one. His goal of cutting the current account deficit makes no sense (growing imports from other markets have more than compensated for falling Chinese imports). But even a better, post-Trump strategy - coordinating with allies to rebuild critical supply chains and carefully targeting tariffs and subsidies - will not avoid economic pain. Let’s be ready.