Combination of trade and strategic dominance makes China an unlikely counterweight to a protectionist US. Trade and geopolitical risks have escalated since Trump assumed office, and the second-order outcome of reciprocal US tariffs is Chinese overproduction. US tariffs on Chinese goods will rise further and China’s exports will be diverted to Europe and Asia. Countries running export surpluses with the US will have to reduce them while protecting themselves against China’s oversupply. This will reorder global trade in favour of the US, but not to the extent of denting Chinese exports. Slowing global growth and rising inflation will, of course, take a toll on the world’s two biggest economies.
The US and Chinese economies require some degree of synchronisation as they seek to rebalance themselves. The US need for investment is a mirror image of China’s need to consume more. If these economies try to set things right on their own, they are bound to unsettle the global economic order. US engagement with China made it the factory to the world. Disengagement through a ‘China Plus One’ strategy for global manufacturing value chains would be an orderly process over trade wars. The rest of the world certainly benefits if Americans make what they buy, and the Chinese buy what they make.
