From a diplomatic point of view, Trump’s trade war with China is an example of economic warfare and global realignment.
“Trade wars are good and easy to win. Other countries have been cheating the US in trade for years. Countries who have used us for years are now stealing our jobs and money. They make fun of how stupid our leaders have been. That’s enough!”
— Donald J. Trump, the 45th President of the United States
This statement, made at the height of trade tensions between the US and China, shows a basic misunderstanding of modern economic diplomacy that has serious effects on the stability of the world. I’ve seen a lot of trade talks and what happens after them in different diplomatic jobs, and I can say that the reality of economic warfare is much more complicated than just winners and losers. The Trump administration’s tariff strategy against China is not just a change in trade policy; it’s a complete overhaul of how the US does business with other countries. This shows deeper problems in the US economy and its place in the world order.
When you look at why the tariffs are in place, you can see how complicated this economic fight is. What started out as a simple trade dispute has turned into a complicated fight that includes class issues, competition between technologies, and big questions about the future of international economic governance. The effects go beyond trade between two countries to include currency systems, technological standards, and even the way the world works together economically.
Using Economic Policy to Fight Class Warfare: Understanding Trump’s Tariff Strategy
The usual story about Trump’s tariffs is that they are meant to protect American manufacturing jobs and lower trade deficits. But a closer look shows that there is a complicated plan to change the way taxes are collected in the US. This is what economist Michael Hudson calls a “inversion” of the historical American System. It turns protective tariffs from tools of national development into tools of regressive taxation.
The mechanism works by changing how money is made on purpose, moving it away from progressive income taxes and toward tariffs based on consumption. This change hurts working-class Americans more than it helps the finance, insurance, and real estate sectors. The strategy is similar to how the US government handled its finances before 1913, when tariffs and land sales were the main sources of federal revenue instead of income taxes. But the modern use serves different groups of people and goals.
A Look at the Past and How It Is Used Today
The American System of the 1820s included protective tariffs, public infrastructure investment, and national banking systems that were meant to help industry grow. Modern tariff policy, on the other hand, combines trade protection with deregulation and privatization. Henry Clay’s American System tried to build the country’s productive capacity through coordinated public investment. Trump’s approach, on the other hand, focuses on market-driven solutions and less government involvement.
This difference is very important for diplomatic relations. Traditional trade talks assume that both sides want to make money by using their comparative advantages. When tariffs are mostly used to raise money for restructuring domestic taxes, the way negotiations work changes completely. The focus changes from improving trade flows to changing the way the economy works at home, which makes it harder to reach a bilateral agreement.
During a number of multilateral trade talks, it was clear that there were diplomatic problems when American negotiators didn’t want to lower tariffs even though it would cost them money. Since these tariffs are meant to raise money for the government, it’s easy to see why traditional trade-off proposals didn’t work. The tariffs help people and things that go beyond the trade relationship with China.
The Way China Does Business Is Not the Same as the Way the US Does Business
The Chinese and American methods of economic development are very different, which makes it tougher to find a diplomatic solution. China’s plan is based on the government owning major sectors like:
- Phone and internet service
- Power
- Money
- Big infrastructure systems
This paradigm affords Chinese negotiators distinct tools and restrictions than American negotiators, who work in a more private economy.
Chinese economic planning works in five-year cycles of development that combine industrial policy with investments in infrastructure and coordination of the financial system. The main goal of the state banking system is not to make as much money as possible for shareholders, but to help the country grow. This structure makes it possible to plan for the long term while taking short-term economic costs into account for bigger development goals.
Managing the Strategic Sector
China and the US have very different ways of privatizing things. The US has relied more and more on market forces to decide how to use resources in telecommunications, energy, and financial services. In China, on the other hand, the government still controls these sectors directly. When talking about market access and competitive conditions, this difference makes the negotiating positions uneven.
From a diplomatic point of view, these differences in structure make it hard for reciprocal market access agreements to work. When American companies try to get into China’s strategic sectors, they run into state-owned businesses with different goals. When Chinese companies try to get into American markets, they have to deal with rules that are meant to encourage competition in the private sector. Neither side has the same rules or reasons to act.
The effects go beyond individual trade deals to bigger issues like how the economy is run and how countries work together. It’s harder to achieve real economic integration when people have very different ideas about how the state and the market should work together. The diplomatic challenge is to find a way to get past these structural differences instead of just talking about specific trade terms.
What Happens When There Is a Trade War, and How Do Countries React?
The US and China are having more trade problems, which shows how economic tools can change diplomatic relations and strategic thinking. Trump’s way of negotiating is different from how diplomats usually do things, which is to focus on keeping relationships and finding ways to save face. This change has had effects that have spread throughout the international system.
Some Chinese goods are subject to tariffs of up to 245%, and the US is calling on other countries to join trade sanctions. This makes it hard for other countries to choose between doing business with the US and China. This binary choice dynamic hurts the multilateral trading system that has been the basis for global economic cooperation since World War II.
Pressure from Both Sides and Effects on Many Sides
Setting 90-day deadlines for negotiations and threatening to raise tariffs puts pressure on time, which can make it harder to carefully manage diplomatic relationships. In traditional diplomacy, there are long periods of discussion that let people save face and slowly put agreements into action. Shortening deadlines makes it harder for everyone to be flexible and makes it more likely that diplomacy will fail.
China has focused on finding ways to replace imports and build new supply chains instead of retaliating directly. This shows that China is willing to pay short-term economic costs in order to become less dependent on American markets and technology in the long run. The diplomatic signal shows that China is willing to take on economic pressure instead of giving up on its main strategic goals.
The bigger international community is feeling the heat to choose a side in this trade war. European allies, ASEAN countries, and other trading partners need to find a way to meet the US’s demands for trade restrictions against China while also meeting their own economic needs to keep good relations with both countries. This change makes traditional alliances weaker and makes it harder for countries to work together on other issues.
Currency Systems and Other Options for Changing the Global Economy
The US-China conflict has turned trade, currency, and financial systems into weapons. This has sped up the creation of new international economic systems. Countries are trying to cut back on their reliance on dollar-denominated reserves, so central banks are buying a lot more gold. The amount of US dollars in the world’s foreign exchange reserves has dropped from about 70% in the early 2000s to less than 60% now.
The trade war may have had the biggest long-term effect on this change in the monetary system. The US has benefited a lot from the fact that the dollar is the main international reserve currency. For example, the US can pay for its deficits with money from other countries that want dollar-denominated assets. If this privilege were to be taken away, it would completely change how the US does business and diplomacy.
Regional Integration and Other Ways to Go
People are seeking to escape American financial penalties by developing regional payment systems and currency swap agreements. There are other ways to conduct things than utilizing the dollar, such as:
- The Asian Bank for Infrastructure Investment
- Agreements to swap currencies between two countries
- Arrangements for funding commerce in the region
These adjustments aren’t just temporary fixes for the problems we’re having right now; they’re permanent alterations to how the global financial system works.
From a diplomatic point of view, these new arrangements create new centers of economic power that may not be in line with what the US usually wants to do. Countries that are part of these systems build economic ties and dependencies that could get in the way of American diplomatic goals. This has made the world economy more complicated and broken up, which makes it harder for the US to use diplomacy to its advantage.
The effects go beyond trade relationships to include bigger issues of how the world economy is run. The US may not be able to use economic tools for diplomacy as well as it used to as alternative systems grow and develop. This change means that the US needs to completely rethink its diplomatic strategy and abilities.
What This Means for Future Trade and Diplomacy Between Countries
The trade war between the US and China has set a number of rules that will affect how countries do business with each other for decades to come. The normalization of imposing tariffs on one side, the weaponization of restrictions on technology transfer, and the use of access to the financial system as a diplomatic tool are all permanent changes to the world economy.
Because of these changes, diplomats need to find new ways to understand and deal with economic relationships. In a world where economic tools are used more for strategy than for business, old methods that depend on assumptions about mutual benefit and comparative advantage may not work as well.
Competition in Strategy and the Transfer of Technology
Trade policy and restrictions on technology transfer make diplomacy very hard. The US’s limits on China’s access to advanced semiconductors, AI technologies, and telecommunications equipment show that the two countries are competing strategically in more than just trade. These steps are meant to hurt China’s ability to develop new technologies, not to fix specific trade problems.
Chinese responses have focused on programs that encourage innovation in China and partnerships with technology companies that are not based in the US. This method aims to keep the economy growing while reducing reliance on technology. The diplomatic challenge is to keep the door open for more cooperation while dealing with technological competition.
One effect on the world is that other countries will feel pressure to choose supply chains and technological standards that are in line with either American or Chinese strategic interests. This split in technology makes it harder for countries to work together on problems that need coordinated technological solutions, like climate change and public health.
Effects on Strategy Over Time
The rise of rival economic blocs based on the US and China is a big change from the idea that economies would become more connected after the Cold War. This new multipolar economic order needs new ways of doing diplomacy that can handle competition while still leaving room for working together on problems that affect everyone.
We need to change the way we do diplomacy to fit a world where economic ties are used for more than just business. This means we need to learn more about economic policy tools and how they affect strategy. We also need to find new ways to deal with economic competition in the context of bigger diplomatic relationships.
The problem is how to keep communication and cooperation going even when there is economic competition. The Cold War may have shown us how to do this, but today’s economic interdependence makes things more difficult and calls for new diplomatic strategies.
In a World with Many Poles, How to Deal with Economic Warfare Is the Last Point
The Trump administration’s tariff war with China is more than just a trade dispute; it’s a sign that the way countries do business with each other is changing from working together to compete strategically. This means that diplomats need to learn new skills and ways to deal with economic relationships that are more strategic than just business.
The effects go beyond the relationship between the US and China to the whole international economic system. The rise of competing economic blocs, the fragmentation of technology standards, and the creation of alternative payment systems make diplomacy more difficult and complicated. To do well in this environment, you need to see economic policy tools as more than just ways to improve trade flows; you need to see them as tools for strategic competition.
The diplomatic profession needs to change to meet these challenges while still leaving room for working together on problems that affect everyone. In a world where competition is structural, this evolution needs people to be better at understanding economics, thinking strategically, and coming up with new ways to manage relationships. The diplomatic community’s ability to adjust to these new realities while keeping the door open for peaceful coexistence and cooperation may determine the future of international stability.
The trade war between the US and China will affect how diplomats work for a long time. Anyone who wants to understand how to deal with the complicated relationship between economics and strategy in modern international relations needs to know how these things work. The hard part isn’t choosing between economic integration and strategic competition; it’s finding a way to do both at the same time that is good for diplomacy.
This assessment’s analytical points of view are based on how professional diplomats look at publicly available information and changes in the international economy. These observations are independent analyses of geopolitical and geostrategic issues and do not represent the views of the government. We would like to hear what you think about these complicated regional dynamics and how they affect global security architecture in a bigger way.
