By Andrew Martin

This article argues that the Chinese government can easily withstand a global trade war with the U.S.

Donald Trump has wasted no time ratcheting up the U.S. trade war with China. On 1 February, the White House announced that (once duty-free) shipments from China worth less than $800 would face new tariffs. All imports from China will face an additional 10% over existing tariffs. Tariffs were also to apply to Mexico and Canada, but Trump backed down, claiming a win over border security, allowing 30 days before they took effect.

Trump’s announcement caused chaos. The U.S. postal service was plunged into turmoil as customs officials scrambled to figure out how to tax the millions of parcels that come into the country each day. Although the tariffs were set to take effect immediately, they were delayed, allowing federal agencies to implement the new duties.

The pretext of the tariffs is supposedly to stop the illicit importation of fentanyl, a potent synthetic opioid analgesic—an issue that has zero to do with trade. According to the U.S. Financial Times, a White House official said the tariffs would be lifted as soon as “Americans stop dying from Made in China, distributed by Mexico and Canada fentanyl”.

The historical irony of this is that the U.S. was an integral part of the opium trade to China, second only to Britain. In the early 19th century, U.S. merchants, particularly those from New England, participated in the opium trade by transporting Turkish and Indian opium to China. Some prominent American trading firms, such as Perkins & Co., Russell & Co., and the Astor family, played key roles in smuggling opium into China.

The DEA—a tool of regime change

The claims that China is providing fentanyl to illegal drug cartels are not new. In 2016, the U.S. Drug Enforcement Administration (DEA) and the U.S. Treasury Department accused China of being the primary supplier of illicit fentanyl. In 2017, Trump publicly blamed China for flooding the U.S. with fentanyl. In 2020, the DEA repeated the claims with a report that stated fentanyl was being delivered via mail order. This is despite China already classifying all fentanyl-related substances as controlled substances, making unauthorised production and sale illegal—a commitment made by President Xi Jinping during the G20 summit. In 2019, all variants of fentanyl and its precursor chemicals were declared a controlled substance.

Chinese government officials state that the U.S. has failed to address its domestic drug abuse problems, a primary driver of the trade. U.S. pharmaceutical companies bear the most responsibility for this problem. They aggressively marketed addictive medications, particularly during the Global Financial Crisis (GFC), while downplaying the risks of prolonged use. The Federal Drug Administration (FDA) and the DEA are also responsible for the oversight and approval of fentanyl on the market in the first place.

The deteriorating relationship with the U.S. makes it harder for China to investigate the illicit trade of fentanyl, as it requires international cooperation between law enforcement agencies. But the DEA cannot be trusted; it has a long history of being used as a tool for U.S. foreign policy, including covert operations that align with regime change efforts. While the DEA’s official mission is to combat drug trafficking, in several cases its activities have intersected with U.S. intelligence and its political objectives of regime change.

The most well-known case was in Panama (which the U.S. again is eyeing mendaciously). Manuel Noriega, president of Panama, had been a longtime U.S. ally and CIA asset. However, by the late 1980s, he had become a liability to the U.S. due to his increasing independence and alleged involvement in drug trafficking. The DEA initially worked with Noriega despite knowing about his drug ties, but as U.S. policy shifted, the DEA began gathering evidence against him. In 1989, Noriega was indicted by a U.S. court on drug charges, giving the U.S. justification to invade Panama in Operation Just Cause, which led to his overthrow.

There are other examples. In Bolivia, the DEA ostensibly sought to disrupt Bolivia’s coca production, but this was used as a cover to destroy leftist political movements through para-military raids throughout the 80s and 90s. In Honduras, support was provided to the Contras in the 1980s to overthrow the Sandinista government in Nicaragua. The DEA’s counter-narcotics operations in Honduras and Central America provided cover for the CIA-backed arms trade and smuggled drugs to fund the Contras. More recently, in Venezuela in the 2010s, the DEA indicted top Venezuelan officials on drug charges, providing justification for U.S. sanctions and regime change efforts.

Without the pretext of fentanyl, Trump would simply invent another—he is not burdened by any sense of truthfulness. During his first tenure as U.S. President, Trump imposed several rounds of tariffs on Chinese goods (particularly aluminium and steel), citing the need to reduce the trade deficit and protect U.S. industries and intellectual property rights.

China imposes its own tariffs

China has countered Trump’s tariffs by imposing a 10% tariff on coal and liquefied natural gas. It has also imposed a 10-15% tariff on imports of crude oil, agricultural machinery, pick-up trucks, and other vehicles with large displacement engines.

China’s State Council Tariff Commission stated: “The U.S.’s unilateral tariff increase seriously violates the rules of the World Trade Organization. It is not only unhelpful in solving its own problems, but also damages normal economic and trade cooperation between China and the U.S.”

China will seek redress through the WTO, but this institution is historically dominated by the U.S., which has always had the most leverage in trade negotiations and decision-making. The U.S. was a key architect of the post-World War II global trading system, including the General Agreement on Tariffs and Trade (GATT), which preceded the WTO, and it has been the greatest beneficiary of this system.

However, China has in the past used the WTO to its advantage against the U.S. through the WTO’s dispute settlement system, forcing the U.S. to either remove trade barriers or face retaliation. It has also sought to shape WTO rules to accommodate its state-controlled economic model and allow for technology transfers.

In 2012, China filed a complaint with the WTO against the U.S. Department of Commerce. After two years of deliberations, the WTO overturned a ruling that considered subsidies to Chinese State-Owned Enterprises (SOEs) were illegal. In 2019, under the first Trump presidency, the U.S. was forced to revise its trade policies or face recriminations from China, leading to the Phase One agreement, signed in January 2020.

China is now in a much stronger position to counter Trump’s tariffs. It has placed export controls on rare metals, directly targeting the U.S. tech industry. These metals include tungsten, tellurium, bismuth, molybdenum and indium and are deemed essential to U.S. economic or national security by the U.S. Geological Survey.

China has also banned antimony, gallium and germanium. These metals are extremely rare (so rare, the reader can be forgiven for not having heard of them). China controls a significant portion of the supply chain for the three metals, mining or refining between 50% and 90% of the global supply of these minerals. The ban only applies to the U.S.

Given China already has the edge over the manufacture of Electric Vehicles (EVs) and renewable energy technology, Trump has chosen a bad time to pick a trade war. China is the leading global producer and exporter of graphite and refines over 90% of the world’s supply into a material essential for nearly all EV batteries.

Western media outlets such as Reuters have called China’s “creeping expansion of restrictions” a “weaponising” of its dominance in mining and processing rare metals. In Western eyes, whatever China does will always be viewed as nefarious and underhanded. How dare China defend itself!

The impact of tariffs—history repeats itself first as tragedy, then as farce

Trump has opened a Pandora’s box. The U.S. will now learn about the unintended consequences and folly of starting a trade war that it can’t finish. Like the Greek myth of Pandora’s Box, trade wars will unleash suffering and ill will globally, which, once unleashed, will be a cascading disaster.

The last major trade war happened 100 years ago during the height of the Great Depression. In a now widely and commonly reposted clip from a certain 1980s movie we’re told that “In 1930, to alleviate the depression, the Republican-controlled House of Representatives passed the Hawley-Smoot Tariff Act which, anyone, anyone… raised tariffs in an effort to collect more revenue for the federal government. Did it work, anyone, anyone know the effects? It did not work and the United States sank deeper into the Great Depression.”

Here is an elementary explanation for why it failed: the tariffs raised import taxes on over 20,000 goods, making foreign products more expensive. Other countries retaliated with their own tariffs, reducing demand for American exports. International trade plummeted as countries imposed counter-tariffs, further shrinking markets for U.S. goods. The tariffs hurt big and small businesses, in particular, farmers and manufacturers who relied on exports. When even its closest trading partners stopped buying U.S. goods, businesses failed and unemployment rose.

Instead of protecting American industries, the tariffs deepened the economic downturn, contributing to prolonged hardship during the Great Depression. This happened at a time when the world was less integrated, and trade was slower and more conventional. Manufactured goods were also very simple, made in one factory or workshop, and much easier to reproduce with basic machine tools.

According to the OECD: “about 70% of international trade involves global value chains (GVCs), as services, raw materials, parts, and components cross borders – often numerous times”. The whole process of production of most manufactured items is global, from R&D, tooling, production, logistics, sale and marketing, and is dispersed in a complex array of processes that can’t be confined within a single border.

This is even truer of the most profitable commodities, including those that require high-end technology for their production. Lower labour costs are only a fraction of the puzzle. High-tech products like smartphones, semiconductors, and electric vehicles rely on raw materials, components, and manufacturing facilities from multiple countries. There are (as the U.S. is about to find out) very specific areas where rare earth elements are mined. Research, development, and manufacturing often happen in different countries, because it is much more specialised than it ever has been. A smartphone might be designed in the U.S., use chips from Taiwan, screens from South Korea, batteries from China, and be assembled in Vietnam. The higher the technology, the more interconnected its production process becomes.

The biggest effect of Trump’s tariffs will be to disrupt global supply chains. Apart from increasing production costs for companies that rely on imported materials, exporters to the U.S. will look for other markets. The inevitable reduction of trade volumes to the U.S. will strain supply chains. Where industries such as the automotive and electronics rely on Just-In-Time manufacturing, unstable inventory levels will lead to stoppages and slowdowns.

The second effect will be to increase inflation. The direct impact of tariffs will be to raise prices on basic consumer goods, but there is also a compounding cost to this. Just one tariff, for example, the 25% tariff on steel and aluminium, increases the costs of all goods—nothing is spared from this. If U.S. manufacturers are forced to use U.S. steel, then they will pay a higher price for it. All the industries that use these alloys will be forced to pass costs on to consumers. This includes all construction, manufacturing, energy, transportation, telecommunication, consumer goods, packaging, heavy equipment, utilities and agriculture.

Finally, tariffs create an unstable business environment, making investments riskier and delaying major projects and new model developments until the architecture of trade is made clear. For small-to-medium-sized businesses and sole traders that rely on contracts from blue-chip companies, this could lead to chains of bankruptcy, creating more chaos and more layoffs.

How will China fare?

U.S. imperialism will face a crushing reality check. China plays a long game and is already many moves in advance. If the tariffs were only targeted towards China, it’s possible the U.S. could hold ground, but China has many trading partners—like the rest of the world for example. Trump’s targeting of the U.S.’s own allies is an extraordinary own goal. Its most reliable trading partners, the E.U., almost the entire Americas including even Canada will be drawn closer to China.

One of the most important factors in a trade war is the ability of people to struggle, and China has prepared for this by investing in its people. China has seen over 12 million college graduates this year alone, and boasts the world’s largest vocational training system, comprising 11,000 institutions. Unlike many countries, China fully funds its vocational programs, modeled after systems like Australia’s TAFE. Additionally, China has expanded universal healthcare coverage from 10% in 2003 to 95% in 2023 and lifted over 800 million people out of extreme poverty since 1980—the largest poverty reduction in history. In contrast, the U.S. poverty rate in 2023 was 13%, with 15 million people in “deep poverty.”

China’s investments in high-speed rail, metro systems, and STEM education have improved mobility, economic opportunities, and technological innovation. Government-backed tech parks and funding have further positioned China as a global tech leader. Despite regional inequality and a low GDP per capita of less than $USD 13,000, China’s domestic economy is dynamic, and can likely withstand export losses.

But even so, China’s export economy is itself well positioned to survive a trade-war. China’s strong manufacturing base means it dominates global supply chains. Even if not made entirely in China, many essential goods have Chinese-made components, and investments in semiconductors, AI, and green energy are rapidly reducing China’s reliance on foreign technology. Moreover, through the Belt and Road Initiative, China has expanded trade and investment across Asia, Africa, and Latin America, reducing dependence on the U.S. market. It is increasingly vying with the U.S. in the Asia-Pacific through regional trade agreements. With over $3 trillion in reserves, China has a financial cushion to stabilise its economy during trade disruptions.

But a good balance sheet is not the end game. China has a state-directed economy (often described as a socialist market economy with Chinese characteristics). It has thousands of State-Owned Enterprises (SOEs) that dominate all the key branches of industry, and all its strategic industries remain under government control. Its economic direction is guided by five-year plans, which outline priorities for investment, development, and industry focus. Crucially, its government is able to intervene more easily and more quickly during economic slowdowns.

The entire Western intelligentsia condemns China as authoritarian. Even socialists are drawn into this compulsory condemnation, ignoring its achievements and listing a litany of errors. But it needs to be remembered that the Communist Party of China (CPC) has no model to draw upon; it must find its own way.

The Western path of social democracy has led to a hopeless dead-end for humanity; socialist movements are tiny and weak, and we are now faced with a revanchist far-right that is, in some places, openly fascist (Italy, for example). Most of the world is at the mercy of governments that worship the free market as if no other force can drive human development. On the other hand, China has a government that can regulate production and has strategically solved the riddle of technological advancement through interdependence with its rivals. No other socialist government has ever accomplished this essential task.

It is also important to note that the people of China are not just well educated in technology and material sciences. A cultural and political advancement has taken place that matches the ideals and values of the CPC, and which has evolved in a way western commentators struggle to appreciate. This goes well beyond mere ideological propaganda, but relates to integrity and solidarity based on many of its cultural traditions.

For these reasons, China is well able to withstand a trade war with the United States.