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US Trade War Backfires

Alright, Tiger—just as we discussed yesterday, China isn't going to take this lying down. We've now entered the true beginning of economic decoupling, marking the start of a financial crisis. Here’s the latest update.

Trump has slapped an additional 10% tariff on Chinese imports entering the U.S., adding to the already sky-high tariffs from the initial trade war and Biden’s penalties. This brings total tariffs on electronics to a staggering 110%, solar panels to 60%, and Chinese steel to 35%. Essentially, the U.S. is attempting to sever trade ties with China and cripple its export economy. But Beijing isn’t backing down.

As we've pointed out before, China has no choice but to respond. This isn't just about national pride—it's about economic survival and demonstrating strength to the Global South and BRICS nations. A global power can’t afford to take hits without retaliating. And now, China has officially struck back against Trump’s trade war. The U.S. strategy is running into a brick wall—China’s leadership isn’t going to fold.

Today’s China is vastly different from what it was 10, or even 5, years ago. It now has a strong economy supported by cheap Russian commodities, dominance over critical supply chains, and a growing list of global trade partners. There’s a reason Trump initially hit Canada and Mexico with 25% tariffs—they were economically dependent on the U.S. and could be pressured. But China is a different story.

Two decades ago, the U.S. accounted for 21% of China’s total exports. However, after Trump’s first trade war in 2018, Beijing took the warning seriously. It aggressively diversified its trade relationships, increasing business with Russia, Asia, and Latin America. By last year, exports to the U.S. had dropped to just 15%.

Here’s the critical part: Trump and his allies can’t reduce Chinese imports to zero. It’s simply not possible. If they tried, the U.S. economy would crash overnight. American consumers would bear the brunt of these tariffs—just look at Walmart, where 80% of goods come from Chinese suppliers, with less than 20% sourced from American manufacturers. Years of corporate greed and relentless profit-chasing have left the U.S. economy deeply reliant on Chinese production.

Trump’s new 10% tariffs will ultimately be passed down to American consumers. If he pushes further with a 60% tariff, household budgets across the U.S. will crumble. China knows this and holds significant leverage in this escalating trade war.

The Fallout of Trump's Trade War

Remember Trump's promise to his voter base? He assured them that inflation would come down. But if another cost-of-living crisis unfolds, his support could start to erode. It’s crucial to understand why China must retaliate—the sentiment in Washington toward China is pure containment. Just listen to U.S. officials, and it becomes clear: there’s no turning back.

As one key figure put it:

"We welcomed the Chinese Communist Party into the global order, and they exploited every benefit while ignoring their obligations. Instead, they have repressed, lied, cheated, hacked, and stolen their way to superpower status—at our expense and that of their own people."

From Beijing’s perspective, the U.S. is only escalating its pressure. Biden’s semiconductor restrictions were just the appetizer—now, Trump is serving the main course. For China, not retaliating would be a losing strategy. If they simply backed down, Trump would continue to demand more concessions.

China’s response? A 15% tariff on U.S. coal and liquefied natural gas (LNG), directly targeting American energy exports. This move isn’t surprising. Thanks to sanctions on Russian energy, Beijing has secured access to an unlimited supply of cheap Russian gas. Additionally, its energy trade with Australia remains strong—China sources 34% of its energy supply from Australia, 23% from Qatar, and over 10% from Russia. In contrast, the U.S. only provides 5-6%, meaning this tariff is a minor inconvenience for China but a significant blow to the American energy sector.

Even though 6% may seem small, China is the world’s largest energy importer. Slapping a tariff on U.S. LNG is essentially a rejection of American supply. Chinese traders will shift to alternative sources, forcing the U.S. to push its remaining buyers—mainly the EU—to increase their imports. The real casualty here? Europe.

China’s move confirms that Trump will have to pressure European nations to buy more American energy, exacerbating their economic struggles. From a geopolitical standpoint, this risks pushing the EU further toward economic instability and deepening fractures within the G7 alliance.

Trump has frequently discussed expanding U.S. energy exports, but with Chinese demand fading, financing new projects will become even more challenging in the short to medium term. Meanwhile, China can simply offset its losses by increasing imports of Russian gas.

The trade war is no longer just about tariffs—it’s reshaping global energy markets and alliances.

U.S. Agriculture On The Line

Along with targeting LNG, China has also imposed a 10% tariff on U.S. agricultural equipment. While this isn’t a massive financial hit, it signals that American agriculture is now firmly on Beijing’s radar—and could be next on the chopping block.

This tariff aligns with China’s broader strategy of self-sufficiency. As domestic industries step in to meet demand, China is moving further away from reliance on U.S. agricultural exports. The shift is already underway: in Q1 2024, China canceled over half a million tons of wheat imports from the U.S.—the highest volume of cancellations in decades. Even before the trade war escalated, China was increasingly focused on growing its own food and sourcing cheaper grain from Brazil.

For American farmers, this is bad news. Falling demand from China means shrinking profits. In 2022, U.S. net farm income stood at $182 billion. By 2024, it is expected to drop to just $140 billion—a brutal 23% decline. On top of that, inflation, rising wages, and higher equipment costs are squeezing margins even further. A tariff war with China only adds to their struggles.

At first glance, China's retaliation may seem mild. Beijing’s new tariffs target just $4 billion worth of U.S. goods, compared to the U.S. levying tariffs on over $500 billion of Chinese exports. Some headlines even suggest China is either holding back or afraid of Trump.

But here’s what’s often overlooked: who actually pays for tariffs? The answer is simple—U.S. consumers. The real damage falls on American companies importing these goods, and the costs will ultimately be passed down to everyday shoppers. Meanwhile, China’s measured response helps shield its own consumers from an inflation shock.

By starting with modest tariffs, China also leaves itself room to escalate further. Over the next months and years, Beijing could target even more U.S. imports—it has around $160 billion worth of goods left to retaliate against. Rather than rushing, China is likely securing alternative suppliers before hitting back harder.

Decoupling has only just begun. If Trump understands the risks, the smartest move right now would be to reverse the 10% tariff and de-escalate—before it’s too late.

U.S. Jobs at Risk

Let’s break down the true danger of a full-scale Chinese retaliation. China is rapidly becoming more self-sufficient, and Beijing is prepared to unleash a massive wave of economic stimulus. Across China’s supply chain, businesses and entrepreneurs will step in to fill any gaps left by U.S. exports.

Trump’s real concern shouldn’t be China’s initial tariff rates—it should be the complete replacement of American goods in the Chinese market.

Take a look at the top U.S. exports to China: soybeans, electronics, crude oil, aircraft parts, vehicles, and corn. Notice the pattern? China is actively working to replace all of these—either by securing alternative suppliers or by ramping up domestic production. This isn’t just another trade dispute; it’s a nationwide push for self-sufficiency on a scale far beyond the semiconductor sanctions. This time, it's everything.

The Economic Fallout

So, what does this mean for the U.S. economy?

A 10% tariff on China would shrink the U.S. economy by $55 billion—and that’s assuming China retaliates with equal force, which it hasn’t even done yet. For now, the immediate impact is relatively small, but history shows us that these conflicts only escalate. Even if China lifted its tariffs tomorrow, that wouldn’t mean the crisis is over. They could cut off U.S. imports completely next month or next year.

Now, let’s look at jobs at stake. The industries most exposed to Chinese retaliation support millions of American workers. Here’s the breakdown:

• Agriculture: Nearly 180,000 jobs in oilseeds and grain production depend on exports to China.

• Education: If Chinese students stop attending U.S. universities, 120,000 jobs in education would be at risk.

• Machinery, semiconductors, automobiles, and energy: Combined, these industries support another 100,000 jobs.

The reality is, the U.S. can’t replace Chinese demand overnight. This is especially concerning because China is projected to surpass the U.S. as the world’s largest consumer market in the near future. Losing access to that market would be devastating.

Which U.S. States Will Be Hit the Hardest?

Not every state will feel the pain equally. Financial hubs like New York will remain relatively insulated, but manufacturing and agricultural states will suffer the most. The biggest casualties will be:

These states export the most to China, meaning job losses would be concentrated there in the event of full retaliation or a total trade cutoff.

The Bottom Line

Washington may be making the decisions, but it’s the entire country that will pay the price. If this tariff war continues unchecked, mass layoffs are inevitable. The U.S. cannot afford to push this any further—it’s time to de-escalate before it’s too late.

China’s Retaliation Goes Beyond Trade

China’s response isn’t just limited to tariffs on U.S. exports—and this is where Trump lacks imagination. Economic warfare is multi-dimensional, and one of the biggest vulnerabilities in the U.S. economy is the debt market.

Congress’s unchecked spending has put the U.S. in a precarious position. Major banks are already warning that U.S. bond yields are dangerously low relative to inflation risks and the growing fiscal deficit. A prolonged tariff war with China would only make things worse, driving up inflation—especially for consumer goods. If the situation deteriorates further, the 10-year Treasury yield could spike above 5% or even hit 6%, regardless of Federal Reserve policy.

The Real Threat: China’s $800 Billion Leverage

So, where does China come in? Beijing holds nearly $800 billion in U.S. Treasury bonds. It has two options:

1. Quietly reduce its holdings and walk away from U.S. debt altogether.

2. Actively dump bonds on the market, driving up U.S. borrowing costs.

Would other countries step in to buy up U.S. debt? That’s uncertain. After Trump's tariff shocks, many nations may become wary of holding U.S. bonds—especially if their trade with America is shrinking.

This Is Just the Beginning

What we’ve seen so far is only the tip of the iceberg. China’s measured retaliation doesn’t mean compliance—it’s a warning shot to the U.S. economy. If tensions escalate, Beijing has many more cards to play.

The big question is: Will China go further and cut off U.S. imports entirely in the years ahead? Let me know your thoughts in the comments below.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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