Now that Donald Trump has returned to the White House, the advanced duties announced by him for importing Chinese products are not the biggest reason to fear Beijing. The Chinese leaders realize that customs are primarily a symbolic and political instrument for Trump, and to a lesser degree an economical weapon that would truly block China's improvement and economical growth.
The real dilemma of Beijing is whether China should detach economically from the global monetary system, in which the dollar is dominant, and turn the group of the largest developing economies (BRICS) into a strategy resembling the Bretton Woods strategy – or not. China's decision in this case does not depend on customs or TikTok's fate, but on whether the hawks in Trump's squad will put him in a confrontation with China, which will go beyond the subject of tariffs and enter the area of financial sanctions.
Duties to curb China are overrated weapons, especially if they are accompanied by promises of large taxation cuts and extremist deregulation in the US. Both of these moves will most likely increase the profits and prices of American companies' shares, which will accelerate the influx of abroad capital to the United States. While the national budget deficit will grow, the dollar will proceed to strengthen (which mitigate the negative impact of duties for Chinese exports), if investors are convinced that the increase in the profitability of US government bonds will not cloud the growth of US stock indices. The gap between national savings and investments – the main origin of the US trade deficit vis-à-vis China and Europe – It'll grow..
Trump is facing a hard trilemate. Is it possible for the US to have advanced tariffs and the dollar to be weaker, but inactive to have a hegemonic position in the global economy?
Chinese leaders carefully studied the 1985 agreement from the Plaza Hotel [an agreement between the G5 group states that assumed a devaluation of the dollar and was signed at the fresh York Plaza Hotel – a crowd]) and anticipate Trump to effort to do with them what Ronald Reagan had done with the nipponese 40 years ago. In another words, China can choose from 2 bad or powerful strengthening of its currency, or powerful duties on Chinese imports to the US. However, this brings us to the political and geostrategic aspect of the full problem.
Trump understands perfectly that China is not Japan – a country whose post-war constitution was written by American officials, and in which presently 55,000 US soldiers are stationed. Moreover, China is no longer as dependent on the American marketplace as it utilized to be. They have diversified their economy and created global supply chains over which they have full control, making their products irreplaceable worldwide.
The chance that China will fall apart and accept the appreciation of its currency in order to avoid prohibitive duties is, to put it mildly, insignificant. People who regulation in Beijing are well aware that the re-evaluation of the nipponese yen has played a key function in permanently blocking Japan's financial and industrial growth.
Trump besides knows that China will decide to revalue its currency in order to avoid the threat of US customs but will impose it for political and purely symbolic reasons. Negotiations will then begin with a compromise solution, and America will reduce its tariffs slightly.
As expected James K. Galbraith, the impact of these duties on Chinese producers will be tiny as planet trade will adapt to the fresh situation. The United States will start buying more goods from Vietnam and India, while Chinese exports to Europe and another parts of the planet will increase rapidly. Paradoxically, if a single economical block is to endure immense economical losses as a consequence of the duties imposed by Trump, it will not be China, but the European Union.
The same is actual of the always higher wall of digital technology that stands between China and the United States. This barrier already benefits large companies from both countries today. An full army of Chinese engineers are making tremendous advancement in producing advanced microprocessors that China would never produce without the fresh Cold War that Trump launched during his first word and the erstwhile president Joe Biden continued and even escalated.
Meanwhile, Trump customs, concentration Cloud capital in the US and America's strong position in investigation and improvement of the digital manufacture are already convincing European companies to decision their investments there. In short, it is Europe, not China, that has reason to despair in the face of the possible of the fresh US president introducing prohibitive import tariffs.
However, this does not mean that China has no origin for concern. The biggest question mark concerns whether advanced customs and anti-Chinese rhetoric will satisfy the top supporters of the confrontation with China in the American administration. It is very likely that their militant attitude will increase their appetite for tougher moves towards Beijing. More specifically, the question is whether these hawks will convince Trump that duties are not adequate and that financial sanctions specified as those imposed on Russia by the US and the EU should be passed on.
If that happens, the Chinese government will gotta resolve its dilemma sooner alternatively than later. Should Beijing anticipate financial sanctions and start procedures to transform the BRICS block (Brazil, Russia, India, China, South Africa and a fewer another fresh associate States) into a monetary strategy à la Bretton Woods, whose kernel would be renminbi and the Chinese trade surplus secured? Or would it be better to stay in a wider dollar strategy and play on time until interior contradictions in the US lead to any another solution?
So far, China's got its ft on the brake pedal. While developing different payment systems, they do not exert force on the BRICS group to become a monetary system. For example BRICS Pay This is simply a fascinating experiment, which involves combining blockchain technology with cross-border central planning to build a strategy to break the dominance of the Western SWIFT interbank transaction system. However, payments in this fresh strategy are denominated in different currencies and have no common collateral. BRICS Pay is as far from the monetary strategy as the dominant SWIFT interbank payment strategy from the euro area.
To make BRICS a major alternate to the global dollar-based monetary system, China would gotta make its surplus available to the BRICS countries. The thought is that, for example, Russia should be able to exchange Indian rupees, which it receives for oil exports to India, after a virtually rigid course on renminbi to be spent on goods from China. This is fundamentally precisely what America was doing in the 1950s and 1960s to safe the Bretton Woods system.
The creation of specified a strategy would be a gigantic step for China and would pose a serious challenge to the dominance of the dollar. Will Beijing take that decision seriously? It depends not on economics, but on geopolitics.
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Copyright: task Syndicate, 2025. www.project-syncicate.org. He translated Domagala's parent from English.
