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A Game of Strategy and Tactics
The trade war has now boiled down to pure strategy and tactics. Today, we need to look closely at what China is doing — and what the United States is planning in response.
Breakdown in Communication We’ve reached a point where communication channels between the two powers have essentially broken down. It’s become a repetitive pattern: the U.S. threatens Beijing, China retaliates, Trump responds aggressively within hours, and the cycle continues.
The Core of the Conflict: U.S. Fiscal Weakness At the core of Trump’s trade war is a sobering realization: the U.S. is financially stretched. Deficit spending is no longer sustainable, and even maintaining the military has become a challenge. Trump and others have pointed out that trade deficits, especially with China, fund their military build-up — a dynamic the administration is desperate to stop. “I don’t want them taking $500–600 billion a year and spending it on their military,” Trump says. “And we shouldn’t have to spend either.”
A High-Stakes Gamble But trying to unwind decades of poor trade policy in six months is a massive gamble — one that risks backfiring.
The Tariff Ultimatum and Economic Fallout When Trump issued an ultimatum — back down or face a 50% tariff — he effectively put the U.S. economy on a dangerous course. Meanwhile, China has refused to submit to what it sees as economic blackmail. They’ve thrown down the gauntlet, signaling they’re prepared to absorb even more punishment. As of this moment, tariffs on Chinese goods could already exceed 100%, possibly hitting 104% or higher.
Containment Strategy: Collateral Damage From a strategic perspective, the Trump administration is clearly trying to contain China’s economic rise by targeting its export machine. But the effects are spilling over. Vietnam, for instance, was hit hard by reciprocal tariffs, with certain exports facing a 46% penalty. Given the razor-thin margins in goods like shoes and t-shirts, many Vietnamese companies are now at risk of collapse.
Vietnam’s Drastic Offer Dismissed In response, Vietnam made a dramatic offer to reduce tariffs on U.S. goods to zero. But Trump’s trade advisor, Peter Navarro, rejected it outright. The U.S., he said, doesn’t just want fair trade — it wants Vietnam to reduce its economic ties with China. The concern is that Chinese goods are being routed through Vietnam (and other countries) in what’s known as “transshipment.”
The Complexity of Global Supply Chains
But here’s the problem: global trade is interconnected. Vietnam and other nations rely heavily on Chinese intermediate goods. Cutting China out of the supply chain would require the entire world to rethink its industrial structure — a near-impossible task.
Beijing Strikes Back: Currency Devaluation That’s why China isn’t backing down. Instead, it’s taking decisive steps to shield its economy. One major move: allowing the yuan to weaken beyond the symbolic 7.2 mark to the dollar. This boosts exports but comes with serious risks. A weaker currency can spark stock market panic, and too much depreciation could destabilize China’s neighbors — making this a dangerous balancing act.
U.S. Currency Constraints Still, it signals China is willing to play this game at the edge. The U.S. doesn’t have the same luxury. The dollar is already weakening due to falling demand for U.S. assets, which stokes domestic inflation. Trump can’t push the dollar up without raising tariffs even more or pressuring the Fed to hike rates — both politically toxic and economically risky moves.
Propping Up the Chinese Market Another lever China has pulled: defending its stock market. Normally, Beijing doesn’t intervene in equities. But this week, after a sharp market drop, the Chinese "national team" mobilized $42 billion for stock buybacks. It wasn’t just to support prices — it was a signal. China wants to show the world it can offer market stability, even without a "Trump put."
U.S. Markets in Chaos Meanwhile, U.S. markets are in disarray. Volatility is rampant, driven not by fundamentals but by tweets and trade headlines. One day Trump hints at exemptions; the next, he doubles down. Investors are left guessing, and nothing seems rational anymore.
A Global Power Shift in Motion While the U.S. turns inward, China is aggressively stepping outward, filling the vacuum America is leaving behind. It’s not just about winning a tariff war — it’s about reshaping global trade, capital flows, and influence for the long haul.
US Bonds Are Crashing
Markets Whiplashed by Trade Rumors Around 10 a.m., a rumor surfaced that the Trump administration was considering a 90-day pause on tariffs for all countries except China. Markets surged over 3% in minutes — only to plunge more than 5% shortly after when the news turned out to be false. It was a chaotic display. The S&P is trading more like an emerging market asset than the world’s leading index — and this may only get worse if the trade war drags on.
Collateral Damage to U.S. Assets While China is clearly maneuvering to benefit from this disarray, Trump’s approach is also damaging the perception of U.S. assets. The financial risk of holding U.S. bonds is now higher than ever. Back in 2022, Biden made headlines by freezing Russia’s reserves — a stark reminder to the world that U.S. assets carry confiscation risk. Now, Trump is reminding everyone that the dollar itself is far from invincible.
The Decline of Dollar Strength Since Trump took office, the U.S. Dollar Index has slid from a high of 110 to around 102 — nearly a 9–10% drop. This hurts U.S. consumers through more expensive imports. But it’s even worse for investors. Foreign buyers of U.S. debt expect a relatively stable dollar. When the currency swings and they need to exit positions during weakness, they face real losses — even if the yield looks decent on paper.
Dollar Volatility Undermines Safe Haven Status This is the paradox. The dollar is supposed to be the “cleanest shirt in a dirty laundry basket” — a safe haven. But that status is fading fast due to erratic trade policy. Trump’s escalating tariff war is making it harder for foreign investors to hold U.S. dollar assets, particularly Treasurys. In 2010, foreigners held 72% of U.S. debt — by last year, that number had dropped to under 58%.
Trade Retaliation Weakens Global Dollar Demand Trump’s dismantling of global trade is creating a ripple effect. As the U.S. closes off its consumer market, both imports and exports are suffering. This reduces the need for dollars in global trade, which further weakens the currency. It’s a self-inflicted wound.
Bond Market Flash Warning Meanwhile, bond markets just flashed a red alert. On Monday, the 10-year Treasury yield spiked from under 3.9% to over 4.2% in just a few hours — a massive move. There’s speculation that China may have dumped as much as $50 billion in Treasurys. We won’t know for sure for a few months, but it highlights the instability. U.S. bonds are becoming too volatile to be considered safe investments.
Long-Duration Treasurys in the Crosshairs Foreign investors tend to favor long-duration U.S. debt — 10, 20, even 30-year bonds. These instruments heavily influence real interest rates in the U.S. economy. But demand is now collapsing. If foreign investors back away or start dumping, the yield curve will steepen, and long-term borrowing costs in the U.S. will stay elevated — even during a recession.
Tariff War Becomes Subsidy War As things heat up, even U.S. allies are fighting back with their own trade barriers. In response, the U.S. is preparing for an export subsidy war. Trump and France have discussed giving U.S. companies tax credits to offset foreign tariffs. It’s ironic — the same U.S. that accuses others of unfair subsidies is now adopting the very same tactics.
A Costly and Contradictory Strategy Here’s the bizarre part: Trump wants to collect tariffs from U.S. consumers and then use that money to subsidize American exporters. Manufacturing in the U.S. is already expensive. Add tariffs on top, and you’re just digging the hole deeper. It’s a strange loop — one that risks spiraling out of control.
How the Export Subsidy Scheme Might Work Let’s say GM exports cars to Europe and faces a 20% tariff. To remain competitive, they might slash prices by 10%, hurting their revenue. Under the proposed subsidy plan, the U.S. government could refund 5% of that loss through export tax credits or even cash rebates. It’s unclear how it would be implemented, but one thing’s for sure — Washington is scrambling to limit the economic fallout.
Global Players Aren’t Sitting Still China, Canada, and others are building their own walls. Retaliation is intensifying. This isn't just a tariff war anymore — it's becoming a full-scale reordering of global trade. The U.S. risks pushing its own trading partners straight into China’s orbit.
Trump’s Denial and the Bizarre Reality Despite clear signs of stress, Trump refuses to acknowledge the fallout. “They don’t want to be with China,” he insists. “They want to be with us.” But this kind of denial only prolongs the conflict. The longer Trump holds this position, the longer the volatility will last — and the higher the cost for everyone involved.
Extreme Volatility Ahead Make no mistake — we are living in bizarro world. These decisions and statements matter. If you're in the markets, buckle up. Volatility is here to stay. What do you think? Will China fire back with more tools? Will Trump eventually make a U-turn?
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub
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