April 21, 2025 ☼ The Intersection ☼ geopolitics ☼ geoeconomics
But the weaknesses behind China's opacity are real
This is an unedited first draft of my column. The Intersection appears every other Monday in Mint.
You might be able to think of a dozen ways through which a public backlash with compel Donald Trump, the US president, to back down on his tariffs on Chinese goods. But if I were to ask you to imagine the kind of pressures that will push Xi Jinping, the general secretary of the Communist Party of China, to do likewise it is likely that you will have a vague idea, if at all. That does not mean he is not under pressure. It only means that the politics of the United States is a lot more transparent. Both sides are under pressure. The next several weeks will be both a contest of which side can stand greater pain and how effectively that pain is transmitted through their political processes.
We saw a glimpse of that in the first week of April when US stockmarkets plunged and US Treasury bond yields jumped causing a number of Mr Trump’s billionaire backers to raise their voices against tariffs. The pain transmission mechanism was quite swift perhaps causing Mr Trump to pause the tariff rollout for 90 days. We can never be sure if bond markets forced the White House hold its fire, but it is reasonable to accept that the destruction of a massive amount of financial wealth in a matter of days was a significant factor.
It is less clear if rising prices of consumer goods, especially consumer electronics, apparel, toys, home furnishings and automotive components will cause similarly acute pain and rapid transmission. Firms have been hard at work to load up inventories and find alternatives to Chinese suppliers. While there might be occassional sticker shocks, prices might not jump overnight. The public narrative could defuse anger over pocketbook issues by focusing on political outrages — of which the Trump administration is triggering many — for months. The main pathway through which public unhappiness over prices finds its way to policy is through electoral politics. Incumbent sentaors and representatives are already getting earfuls, but since mid-term elections are 18 months away, it might be a while before politicians feel enough pressure to contest Trump’s policies.
I do not know enough about US politics to make confident assessments, so I asked some astute observers where the economic impact and electoral challenges for the Republicans coincide. Here’s what I gathered. Republicans will be vulnerable in Michigan, Ohio, Pennsylvania and Wisconsin because manufacturers in these states will suffer losses and lay off workers. If the slump in agricultural exports — both due to tariffs and cuts at USAID — worsens, then Iowa, Nebraska, and Minnesota will also pose challenges to Trump’s party even in their strongholds. There are already signs that US farm incomes have been impacted, but it might be months before they find political expression.
Of course, stock and bond markets might well cry “Uncle!” in the coming weeks and way before consumers and firms if they see the 245% tariff on Chinese goods begin to eat away at corporate earnings into the medium term. This kind of pain is sharp and those hurt are politically influential. We have already seen it play out this month. That said, if Trump holds his line, and tariffs levels and uncertainty persists over several months it is possible that consumers, firms, farms and investors will all feel the pain simultaneously. If that happens, the effect will go far beyond a change in US trade policy.
What about China? The manner in which the US imposed tariffs and the accompanying orchestra painting China as the adversary has fueled an already surging nationalist narrative there. At times such as this, the first order effect would be one where the people rally around Xi Jinping and Communist Party of China. This is ironic because Xi, more than any other person, is responsible for policies that pushed the US into this trade war.
That said, economic pain is inevitable. It is all very well to argue that China exports a lot to countries around the world and the impact of US tariffs won’t hurt all that much. Yet losing a fifth of your exports to the world’s richest customers will result in weaker revenues, smaller margins, wage cuts and job losses. Beijing can roll out subsidies to help firms tide over immediate losses, but it will have to be cautious because it cannot anticipate how long it will have to do so and how deep it will have to reach into its pockets.
How will this influence Xi Jinping stance? Beyond the usual concerns about what a downturn means for his legitimacy, factional politics within the CPC and the remote possibility of public protests, we really do not know. Beijing would be justified in assessing that Trump’s policies drive another nail in the coffin of US global hegemony, even if it means the Chinese economy will be damaged in the process. After all, it’s easier to recover economic ground than to resurrect a superpower.
It would appear that the Trump will stand down before Xi does. I wonder if this is only because we know relatively more about the internal dynamics of the United States, or that what you see is what you actually get.
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