Trump is losing his trade war with China - badly, pt. 1

Trump has blown up America's deterrence

Jul 22, 2025

This is part one of a two-part series on how Trump’s trade war with China is faring. Read part two here.

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In 1812, the United States invaded Canada, crossing the border on the western edge of Lake Erie at Detroit. The army’s commander, William Hull, was bullish at first, thinking he and his ragtag militia were easily going to steamroll the British. But things soon turned against him, and his troops were forced back onto the U.S. side of the border. The British then followed, seizing Fort Detroit and forcing an evacuation of nearby forts and towns. What had started as an invasion of Canada ended up with the Americans ceding a huge chunk of territory to the British, whose Indian allies then proceeded to massacre large numbers of captured U.S. soldiers.

This is about how well Donald Trump’s trade war against China is going.

How we got here

Trump came into office convinced that a large dose of tariffs could set the economic relationship between China and the United States on the right track. He eventually put tariffs totalling 145% on all imports from China, only to pause them when U.S. equity and bond markets took a dramatic turn for the worse.

Beijing responded to the tariffs by putting export controls on a range of critical minerals and magnets which are vital to American manufacturing, and for which there are no other suppliers at scale in the world.

This led to panic among U.S. companies, who then leaned on the White House to quickly resolve the dispute. “Mr. Trump and his top advisers were surprised by the threat that Beijing’s countermove posed,” according to reporting, even though anyone who has read a newspaper article about U.S.-China trade relations in the last five years could have predicted this would happen.

So what did the White House do in response? Well folks, it started doing what William Hull did - retreating, and ceding territory as it went. We have now moved into a phase of Trump’s trade war in which he is making concessions to China as he panics to get his promised “deal” back on track.

Trump seems to have realized the limits to his coercive approach to China. Beijing, it turns out, can actually do a hell of a lot of harm to the U.S. economy. And that harm comes on top of the fact that Trump’s own policy is tremendously self-destructive because it cuts American manufacturers off from supplies that they need and makes consumers deal with higher prices. Trump started out full of bluster, but his hasty retreat shows that he belatedly realized that he is the weaker party here.

Most of the concessions made so far amount to simply rolling back his own threats. In Geneva earlier this year, the two sides negotiated a temporary truce. Trump also unilaterally conceded that he would actually only target China with 80% tariffs as opposed to 145%. The White House is said to be frantically searching for other concessions that it can make to get Beijing back to the table.

Losing the chip war

One step that they’ve already taken is highly significant: agreeing to allow chip-maker Nvidia to resume selling one of its advanced AI chips, the H20, into the Chinese market again.

The “chip war” between the United States and China is years old. The basic story is that China wants to be able to buy Western chips in order to jumpstart its AI industry, and the Biden administration imposed restrictions on it doing so. The Biden administration didn’t make this move as part of some sort of negotiation or quid pro quo - it wasn’t looking for something from Beijing in return. Instead, it saw the restrictions as a fundamental plank of American national security, a necessary move to stop an adversarial state from developing advanced military technology.

But now the Trump administration has effectively declared China’s access to high-technology chips as up for negotiation. And as the White House scrambles to extricate the American economy from the mess it has gotten it into, we can expect Beijing to push its advantage in this area as hard as possible.

Losing your deterrence

The White House’s broader problem here is that they’ve lost their deterrence. We often talk about deterrence in military terms - it means that your enemy is too scared of you to attack. But it absolutely applies to trade wars too.

When Biden first imposed chip export bans, China’s retaliation was not particularly dramatic. For whatever reason, Chinese leadership didn’t want to go down the road of a full-blown trade war, probably largely because they feared the economic damage that would result. Beijing couldn’t have known that the American leadership would back down so quickly, and it wasn’t worth the risk of finding out. The U.S. still had deterrence.

Trump has turned all of that calculus on its head. He started the trade war and then he retreated from the disaster that it had become just as quickly. All Beijing had to do was show a little steel and wait for Trump to back down. The U.S. president was effectively negotiating with himself, and losing.

As a result of Trump’s rash actions, the U.S. finds itself in a bad position. The last few months have demonstrated that the U.S. economy would be badly damaged by a trade war with China, that the current American leadership has no stomach for accepting that damage, and that the Trump regime is chaotic and lacks the ability to engage in strategic planning. Its deterrence is gone. Beijing would be foolish now not to press its advantage.

Trump is not a China hawk

Another lesson from all this - one I’ve written about before - is that Trump is not really a China hawk.

This can seem a bit counterintuitive, given that Trump built much of his political reputation as the guy who was tough on China. But Trump has never really cared about any aspect of U.S.-China relations other than economics. And even on economics, his goal is not really to suppress the rise of the Chinese economy or to prevent China from translating its economic might into military dominance. It’s just to make sure that American companies can make a quick buck in the Chinese market and American consumers are not getting “ripped off” by Chinese imports.

China hawks, by contrast, tend to be much more holistic and strategic about relations with Beijing. The Biden’s administration’s chip export bans - the ones that Trump is now putting up for negotiation - were part of a strategic plan to try to ensure American dominance of high technology industry by suppressing China’s rise. International deals like AUKUS and the Trans-Pacific Partnership - which Trump walked away from - were attempts to build an American-led coalition of allies to contain Beijing. China hawks also want to send more troops to the Indo-Pacific and train the American military for conflict with China, not consume it in culture wars and waste the time of U.S. Marines by deploying them on the streets of Los Angeles.

Trump isn’t really interested in any of this stuff. Instead, he has a singular and simplistic obsession with the idea that the U.S.-China economic relationship is unbalanced, which leads him to the singular and simplistic solution of tariffs.

And when that strategy fails to achieve anything - as it did in his first term and is doing once again in his second - he falls back on just trying to negotiate a deal which he can pretend is a victory, regardless of the price. It’s deeply strategically unserious. It’s also dangerous for U.S. interests. Now that Trump has gotten himself into this mess, what other concessions is he going to make to Beijing in return for a piece of paper which he can pretend is a great triumph?

Trump is also wasting precious time that the United States and the West need to ensure that they don’t get outflanked by Beijing in the race to dominate the technologies which will determine success or failure in the marketplaces and battlefields of tomorrow. That’s the subject of part two of this series, which I’ll release on Thursday.

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