Stress Testing China: Trump’s Trade War

In this video, we’ll examine some of the factors that may contribute to the success or failure of Trump’s bold strategy to re-draw the global economic order and mitigate China’s growing dominance over the global economy. China’s strength may lie in its industrial and export dominance, but this position also comes with a structural vulnerability. The enormity of the US market, central to the world economy, can be the source of tremendous opportunities, or, it can be a barbed snare.

The current international trade environment is greatly shaped by China’s over-supply of manufactured goods. Industrial over-production, subsidized by the Chinese government, enables China to rapidly displace manufacturing operations in other developed countries—destroying their competitiveness while building industrial dependence.

As Chinese production out-paces global demand, the profit margins on Chinese manufactured products decrease. In September of 2024, China’s industrial profits fell 17.8% year-over-year. For all of 2024, industrial profits fell 3.3%—the third straight year of contraction. In order to keep prices as low as possible, China has avoided building domestic demand for its own products, instead, choosing to keep wages as low as possible. Growing its domestic market would require increasing the amount of disposable income for its population, which, would lower its ability to under-cut foreign manufactured products on a cost-basis. Escaping the middle income trap, would mean losing its primary geopolitical strategy of creating critical industrial dependencies.