Superpower showdown: how US-China economic warfare could play out under Trump

After retaking the White House last month, US president-elect Donald Trump celebrated his victory by attending an Ultimate Fighting Championship heavyweight bout with his friend and UFC president, Dana White, alongside billionaire ally Elon Musk. Days later, Trump, the well-known fan of mixed martial arts, started to announce his pick of a group of diehard supporters for his “America first” agenda who are expected to come out swinging at China – America’s most consequential geopolitical rival – in his second term. From Howard Lutnick, a Wall Street executive who has been vocal about tariffs, to Peter Navarro, a hawkish economist sanctioned by Beijing, choices made by Trump for his economic team signal that competition and conflicts between the world’s two largest economies are set to intensify, according to analysts. And some say that China, which has maintained a stable team of loyalists to President Xi Jinping and gained experience with Trump in his first term, may respond with more composure – as demonstrated in the ancient Chinese martial art of tai chi – while trying to dissolve attacks from the United States. Vice-Premier He Lifeng, who has been the “Chinese lead in US economic and trade talks” since last year, is expected to play a pivotal role in dealing with what looks to be shaping up as a fresh round of trade contentions. As for their stance on China, these individuals are generally tough and hawkish Zhou Mi, Chinese Academy of International Trade and Economic Cooperation Unlike when Trump first entered politics and had to rely on the opinions of establishment Republicans, his strong return has elevated loyalty to his primary criterion for selecting candidates, aiming to minimise any constraints on presidential power. “As for their stance on China, these individuals are generally tough and hawkish,” said Zhou Mi, a researcher with the Chinese Academy of International Trade and Economic Cooperation, a think tank affiliated with the Ministry of Commerce. “Compared with the security and other teams, Trump’s economic team shows a bigger tendency to apply stronger pressure on China,” he said. “At the same time, they are less inclined towards engagement with China.” The Chinese team, however, is seen to resemble tai chi practitioners in the way that they tend to use softness and flexibility to overcome hardness. “Regardless of external pressure or cooperative intentions, China has maintained a steady framework and approach,” Zhou said. “At the global level, it adheres to multilateral rules and seeks solutions within multilateral frameworks,” he said. “On a bilateral level, it utilises laws, regulations, and policy measures to safeguard the legitimate rights and interests of businesses while creating a more favourable environment for all parties to grow in China.” Hawks in Trump’s corner Craig Chan, head of global currency strategy at investment bank Nomura, described the cabinet that Trump has announced so far as “extremely hawkish, extremely in the pro-tariff camp”. Tariff hikes that Trump has threatened to impose on China and the rest of the world before and after his victory “will probably get implemented right at the start of his term”, Chan projected. “Last time, it was a year and a half of the trade war, this time, there’s the potential that it could be faster – maybe it’s faster with China.” Trump has named Lutnick, the Cantor Fitzgerald CEO with a bold vision of eliminating income tax and replacing it with tariffs, as his commerce secretary – a role that is crucial to Sino-American economic relations. Heading one of the largest firms of interdealer brokers, the man believes that globalisation undermines US workers. “Tariff the rest of the world and keep them the heck out,” he once said. Trump said Lutnick would “lead our tariff and trade agenda”, with special responsibility for the Office of the US Trade Representative, which is not yet officially part of the Commerce Department. While it is still unclear how exactly Trump will organise the trade posts in his new administration, the nominee for the trade-representative role is also an advocate of trade protectionism. Jamieson Greer, an international trade lawyer, served as chief of staff to former trade representative Robert Lighthizer, the architect of Trump’s tariffs on some US$370 billion worth of Chinese imports during his first term. Lighthizer was well known for his hostility toward Beijing and his protectionist views, as reflected in his book, No Trade Is Free. As his protégé, Greer played an important role in negotiating with Chinese officials on the phase-one trade deal signed in January 2020. Under that deal, China committed to purchasing some US$200 billion worth of American goods over two years, which it failed to do. Chen Fengying, a senior researcher with China Institutes of Contemporary International Relations in Beijing, said that unlike during Trump’s first term, when the trade representative was parallel to the commerce secretary, it will now to be under the latter, signalling a tendency to play down negotiations. Tariff hikes are not the end game for Trump, but rather the means to pressure countries held accountable for their social issues, she said. Late last month, Trump vowed to charge Mexico and Canada a 25 per cent tariff on products coming into the US, on the first day of his administration, as retaliation for illegal migration from the American neighbours. He also pledged to increase tariffs by 10 per cent above existing levels on Chinese goods until it prevents the flow of illegal drugs into the US. “The status of the trade representative seems to be declining, but the goal to solve issues is becoming even clearer,” Chen said. She warned that China should also watch out for the Treasury secretary nominee, Scott Bessent, who would be given broad authority over tax policy, public debt, international finance and sanctions, if approved by the Senate. A disciple of George Soros, the head of New York-based hedge fund Key Square Capital Management helped Soros “break” the Bank of England in the 1990s. Bessent is also known for betting against the Japanese economy a decade ago. “China needs to pay attention to the yuan and prevent it from being shorted,” Chen said. Describing those people as “capable and ready to get things done”, she added that, “unlike the team in Trump’s first term that fell into chaos, it’s unlikely to see them fail this time”. Trump replaced three chiefs of staff, three secretaries of homeland security and two secretaries of defence due to “disagreements” and other issues during his first administration. Another key role on the president-elect’s economic team was given to Navarro, a fierce China hawk and long-time aide who was in federal prison for four months earlier this year after being held in contempt of Congress for defying a congressional subpoena. After serving as director of the White House National Trade Council in the first Trump administration, the economist has been named “senior counsellor for trade and manufacturing”. On the other side of the negotiation table is a team of Chinese technocrats led by Vice-Premier He Lifeng, who also directs the office of the Central Finance and Economic Affairs Commission, a key decision-making body headed by the president. The 69-year-old He has kept in contact with US Treasury Secretary Janet Yellen via a dialogue mechanism that launched in July 2023. Along with him is commerce vice-minister Wang Shouwen and finance vice-minister Liao Min, both of whom participated in the trade talks during Trump’s first term. The two have maintained working-level communication with their US counterparts in the administration of US President Joe Biden for the past year and a half. Potential fragmentation Although Trump’s camp comprises supporters of his “America first” and “Make America Great Again” agendas, they do not fully agree on every issue. Kevin Hassett, a veteran economic adviser to several former presidents who is known for being less aggressive than Lighthizer, is tapped to lead the National Economic Council in Trump’s second administration. Hassett emerged as a prominent advocate for Trump’s policies during both his first administration and his second presidential campaign, but Hassett once remarked that he “didn’t have the DNA of a Trump adviser” and also acknowledged that tariffs can weaken economic growth. John Gong, a professor of economics at the University of International Business and Economics in Beijing, said: “Some of [Trump’s] picks are relatively moderate, such as Bessent, who I think, while supporting Trump’s idea of bringing back manufacturing, will not seek to decouple with China.” The hedge fund manager views tariffs as a sanctions tool for achieving the president’s foreign policy objectives. However, “I would recommend that tariffs be layered in gradually,” Bessent said in a CNBC interview last month before he was picked. Uncertainty also surrounds how effectively anti-China policies could be implemented, given that Lutnick’s business ties in China sparked controversy after he was recommended to lead the commerce department. Lutnick’s financial services firm, BGC Group, was reported to have a joint venture in Beijing with the state-owned China Credit Trust. And the other firm under his helm, Cantor Fitzgerald, has helped Chinese firms go public in the US. The Wall Street billionaire was among the many wealthy men Trump has tapped to help form a potentially richer-than-ever administration in American history, sparking questions about how motivated Trump will be to fulfil his pledge to “rescue the middle class”. The total net worth of the billionaires in the Trump administration looks to be at least US$383 billion – higher than the gross domestic product of 172 countries, according to the US News & World Report. Elon Musk’s role Compared with the hawkish advisers around Trump, Elon Musk – the world’s richest man, with a net worth estimated at more than US$400 billion, as well as extensive business interests in China and other regions – is increasingly being seen as a potential diplomatic bridge for Trump’s second term. While not formally part of the president-elect’s cabinet, with its core 15 members needing to be confirmed by the US Senate, Musk is still considered a close confidant of Trump. Musk and Indian-American entrepreneur Vivek Ramaswamy were jointly tapped to lead the newly established “Department of Government Efficiency”, tasked with reducing federal government expenditures. One of the largest donors to Trump’s second presidential campaign, Musk has been lauded by Trump as the “greatest cutter”, owing to the aggressive workforce reductions in Musk’s business empire. Musk’s investments and significant business interests in China have also led some observers to view him as a potential intermediary for behind-the-scenes communication between China and the Trump administration. Unlike politicians, Musk is a businessman who tends to be more flexible Yang Jianwen, Shanghai Academy of Social Sciences Yang Jianwen, an economic researcher at the Shanghai Academy of Social Sciences, said: “Unlike politicians, Musk is a businessman who tends to be more flexible, so he may play the role of [Henry] Kissinger in the future superpower competition.” Kissinger, an American diplomat who served as US secretary of state and national security adviser a half-century ago, was best known for helping former president Richard Nixon establish relations with China. However, it remains unclear whether Musk would be personally interested in such a role, or if Trump and his cabinet would invite Musk to participate in shaping US-China policy. Chen, the Beijing researcher, expected Musk to play a bridging role “to some extent”, but warned that China should not pin too much hope on him. “He’s not as hostile to China as the others, but never expect too much from him,” Chen said. Ray Dalio, an investor and founder of Bridgewater Associates, has said that, under the collaboration between Trump and Musk, US economic renovation will come via “industrial policies that are designed to improve productivity and efficiency without much worry given to the people or issues”, such as climate change, poverty and inclusion. “As long as the Trump-Musk partnership lasts, they will be the main designers and implementers of this new domestic order,” he wrote in a piece for Time magazine last month. Will Trump and Xi rumble? Some analysts say that, as a smackdown of economic officials is brewing, the US-China superpower rivalry ultimately boils down to a fight between their presidents. “Trump’s core criterion for selecting his team is loyalty to his will,” said He Weiwen, a senior fellow with the Centre for China and Globalisation, a Beijing-based think tank. “Therefore, there are only quantitative differences, but no essential differences, between team members in implementing Trump’s policies. “The focus should be Trump’s will, and everything else should be secondary.” While it remains to be seen how cohesive Trump’s new team will be, his last administration was known for its frequent turnover. In contrast, China’s team has remained relatively stable over the years, said Zhou, the researcher from the commerce ministry think tank. Stressing that there has been consistency in China’s response to external challenges, Zhou said that such an approach is “not influenced by personnel changes but rather reflects a sustained effort over the past several years”. Multiple negotiations between the US and China took place in the first 10 months of their trade war that kicked off in July 2018, with Lighthizer and Liu at their countries’ respective helms for the talks. But negotiations broke down in May 2019, and the Trump administration raised tariffs on Chinese goods. It was not until the phase-one deal was signed in early 2020 that trade ties began to improve, but more setbacks followed. And in January 2022, Biden refused to lift the Trump-era tariffs, pointing to China’s failure to honour its commitment to buy an additional US$200 billion worth of American goods and services by that time. Representatives from the Chinese side who engaged in those negotiations and are still holding key positions today include agriculture minister Han Jun, who then was deputy head of the ministry. In the Biden era, China and the US established two dialogue channels – the Economic Working Group and the Financial Working Group – to manage differences in Sino-American ties, as the presidents met last year in a landmark summit. However, the future of those working groups appears to be up in the air following their most recent meetings this month. It is unclear whether Trump will keep the mechanism going as observers expect his clash with China to intensify. Additional reporting by Luna Sun, Maple Leung

Superpower showdown: how US-China economic warfare could play out under Trump

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}As US president-elect Donald Trump forms his hawk-filled cabinet, what might China do to counter and deflect a barrage of blows?

As US president-elect Donald Trump forms his hawk-filled cabinet, what might China do to counter and deflect a barrage of blows?