China underestimates Trump and his trade war — America is ready for battle
President Trump and China’s leader, Xi Jinping, are engaged in a monumental struggle over tariffs and trade — will Barbie determine the outcome?
Xi is betting that Americans are too spoiled to abandon the cheap imported goods — like the iconic Barbie doll — that have filled the shelves of Walmart and Costco for decades. Trump is betting that China’s economy will swoon under the burden of tariffs and that U.S. companies will prove more agile than expected in shifting output to other countries.
Trump acknowledged the risk of his tariff war at a recent town hall. “Well, maybe the children will have two dolls instead of 30 dolls. And maybe the two dolls will cost a couple bucks more than they would normally.”
Though almost 80 percent of the toys sold in the U.S. are made in China, some makers, like Barbie producer Mattel, have been quietly moving production out of China. Mattel said earlier this year that only 40 percent of its products will be made in China this year, down from 50 percent last year. And Mattel is not alone.
Nonetheless, if tariffs on Chinese goods remain at 145 percent, many toy prices will almost certainly head higher.
Trump also said — accurately — that China “is having tremendous difficulty because their factories are not doing business.” The Wall Street Journal recently ran a lengthy article about Chinese firms scouring the earth for new customers as demand from the U.S. dries up in the face of Trump’s tariffs. As the Journal reported, replacing U.S. demand won’t be easy, as we are “by far the largest single-country buyer of China’s exported goods, accounting for roughly half a trillion dollars of products, or about 15 percent of China’s goods exports.”
China’s factory activity fell in April to its lowest level since late 2023. Declining exports hits China hard, as those sales account for nearly 20 percent of the country’s economy. Despite repeated efforts to boost household spending, consumers contribute less than 40 percent of total economic activity, compared to the 60 percent to 70 percent in most developed economies.
A giant real estate bust, erratic economic policies and declining prices have Chinese consumers in retreat, despite frantic government efforts to stimulate demand. Job losses won’t help; not only are orders and shipments falling, employment has turned down as well. In addition, business confidence has dropped to a seven-month low.
More job losses are likely. Goldman Sachs estimates that some 10 million to 20 million workers in China are engaged in the U.S. export trade. That compares with government estimates of a total city working population of 473 million. U.S. Treasury Secretary Scott Bessent recently said the tariff-related fall-off in exports for China is “unsustainable.”
Meanwhile, how is the U.S. doing? Certainly, the tariff battle has hit consumer and business confidence and also caused some softness in the stock market. But despite all the fear-mongering by Trump’s critics, the U.S. economy is holding up.
First-quarter results were just released, showing that the economy retreatedmarginally because companies, anticipating Trump’s tariffs, loaded up on imported goods, and also because government spending declined by 0.3 percent. As Heritage economist E.J. Antoni noted on X, consumer spending outpaced government purchases by the largest amount since the second quarter of 2022. He rightly called it “fantastic news.”
The most important read on the U.S. economy was this summary from the Bureau of Economic Analysis: “Real final sales to private domestic purchasers, the sum of consumer spending and gross private fixed investment, increased 3.0 percent in the first quarter, compared with an increase of 2.9 percent in the fourth quarter.” In addition, the Commerce Department reported that consumer spending jumped 0.7 percent last month, on top of an upwardly revised 0.5 percent increase in February, surpassing expectations.
In other words, despite the negative press, the economy not only continued to advance at a reasonable clip in the first quarter but saw a slight acceleration in consumer spending and investment. The huge surge in imports (goods up 51 percent!) delivered a 4.8 percent headwind to stated growth, accounting for the entire dip in GDP and then some.
On inflation, the news was also positive, with the Personal Consumption Expenditures price index coming in unchanged in March after advancing 0.4 percent in February. For the last 12 months, personal consumption increased only 2.3 percent compared to 2.7 percent for the 12 months ending February. The core PCE in March also showed no rise, after a 0.5 percent jump the month prior.
If the showdown between Xi and Trump comes down to whose economy is performing better, the U.S. unquestionably has the stronger hand. Even Nouriel Roubini, called “Dr. Doom” for his persistent negativity — and certainly no fan of Trump’s tariffs — says he expects the tech and AI boom to continue to power the U.S. forward. In a recent op-ed, Roubini stated that“the U.S. economy’s potential growth will approach 4 percent by 2030, far above the International Monetary Fund’s recent estimate of 1.8 percent.” His reason for thinking this was that the U.S. leads the world in ten of the 12 industries he says will define the future. China leads only in one of the 12 — “electric vehicles and other green tech.”
Meanwhile, China’s Xi refuses to stand down, certain that U.S. consumers will balk at tariff-induced higher prices or scarcities. GOP pollster Frank Luntz recently interviewed a number of Trump voters, expecting them to rail about the tariffs, only to find they stood with the president, ready to pay a little more for U.S.-made goods and to give him time to see his agenda bear fruit.
At the same time, manufacturers are moving out of China, at an accelerating pace.
Xi might find, to his surprise, that Americans can do without Barbie for a time, and that U.S. companies are more capable of leaving China than he expects.
https://thehill.com/opinion/finance/5277881-trump-china-tariffs/
Published in The Hill
