The US-China Economic War: Trump’s Gamble and the Global Fallout
By Mohamad Hammoud
Lebanon – Since returning to office in 2025, President Donald Trump has intensified his economic confrontation with China, framing it as a fight for American supremacy against a “cheating” rival. This trade war, characterized by sweeping tariffs, export controls, and financial sanctions, has reshaped global markets and strained alliances, accelerating the fragmentation of the post-World War II economic order. While Trump claims his policies are reviving US manufacturing and punishing China’s “unfair practices,” critics argue that the strategy is backfiring, weakening the dollar’s dominance, and pushing Beijing to forge a parallel economic bloc.
Trump’s Motives: Populism, Power, and the Fear of Decline
At the core of this conflict is President Trump’s belief that America must assert its economic dominance to avoid being overtaken. He views China as America’s greatest competitor—an authoritarian state whose ambitions threaten US prosperity and security. During his first term, Trump implemented aggressive tariffs, accused China of intellectual property theft, and blamed it for trade imbalances. In his second term, he is intensifying these efforts with even more sweeping measures to curb China's influence and appeal to his political base, particularly in the industrial Midwest, with promises to “bring jobs back.”
To achieve these goals, his administration has imposed restrictions on the export of advanced semiconductors and pressured allies to do the same. The aim is to slow China's ascent in critical sectors like artificial intelligence, green energy, and telecommunications—areas essential for global leadership.
Economic Consequences: Pain on Both Sides
While Trump promotes his policies as a victory for American workers, the reality is more complex. Tariffs on hundreds of billions of dollars’ worth of Chinese goods have driven up prices for US consumers, contributing to inflation levels not seen in decades. Everyday items—from electronics to clothing—are now noticeably more expensive, and American manufacturers relying on Chinese components are feeling the squeeze.
China has not remained passive in response to Washington’s economic pressure. Beijing has accelerated its economic shift, focusing more on domestic consumption and trade with the Global South. The Belt and Road Initiative continues to forge strategic alliances in Africa, Southeast Asia, and the Middle East, enhancing China’s influence and building an alternative economic architecture.
Moreover, China has retaliated with its own tariffs on US exports, impacting American farmers and manufacturers significantly. The Chinese government has restricted shipments of rare earth metals, essential for US tech and defense industries. These tit-for-tat measures have created uncertainty in global supply chains and slowed economic growth worldwide. According to the International Monetary Fund, the trade war has reduced global GDP growth by over a percentage point since 2024, with emerging markets particularly vulnerable.
The Dollar Dilemma and China’s Bond Holdings
One of the most discussed aspects of the US-China economic standoff is China’s position as the largest foreign holder of US Treasury bonds. Speculation has surrounded whether Beijing could "weaponize" its holdings by selling off US debt, thus undermining the dollar and raising America’s borrowing costs. Recently, China has begun to reduce its holdings, selling off an estimated $250 billion in Treasuries since late 2024. This has contributed to rising US interest rates and added pressure to the dollar, although it remains the world’s dominant reserve currency.
Most economists caution, however, that China’s ability to crash the dollar is limited. A massive sell-off would jeopardize China’s own investments and destabilize global markets, which Beijing seeks to avoid. Instead, China is adopting a more gradual approach, promoting the use of the yuan in international trade and encouraging BRICS partners to settle transactions outside of the dollar. This trend toward “de-dollarization” is slow but evident, indicating a shift in the global financial landscape.
Expert Perspectives: Who’s Winning—and Who’s Losing?
When evaluating the outcome of Trump’s economic war, most experts agree that there are no clear winners. While the US has slowed China’s progress in some high-tech sectors, the costs to American consumers and businesses have been significant. The Peterson Institute for International Economics estimates that the trade war has cost the US hundreds of thousands of jobs and reduced GDP growth by over half a percentage point annually since 2024. In response, China has increased its investments in domestic innovation and forged closer ties with countries outside the Western orbit.
Some economists warn that Trump’s strategy could backfire in the long term. Isolating China may push it toward self-reliance and the formation of a parallel economic bloc centered around BRICS nations (Brazil, Russia, India, China, and South Africa). At the BRICS+ summit earlier this year, China and Russia led calls for a new international financial system that does not depend on the US dollar, with Saudi Arabia and Iran voicing similar support, signaling a potential shift in the global financial landscape.
What Comes Next?
Looking ahead, the economic war shows no signs of abating. Trump’s administration is expected to tighten technology export restrictions and pursue even more aggressive decoupling from China. Meanwhile, Beijing is likely to continue diversifying its reserves, investing in alternative payment systems, and building alliances through BRICS and other forums. The threat of a full-blown currency war looms, carrying unpredictable consequences for global markets.
For ordinary people in both countries—and around the world—the stakes are high. Higher prices, slower growth, and increased uncertainty are already being felt, with long-term effects on innovation and cooperation yet to be determined. As historian Adam Tooze warns, “The 21st century will not be American. The question is whether it will be cooperative or chaotic.”
Conclusion
Ultimately, Trump’s economic war with China may be remembered more for the damage it inflicted on the very system that enabled American prosperity than for any victories it achieved. The world is watching and preparing for a future where economic power is more diffuse, and the old rules no longer apply.
