To The Moon

A trade war between the United States and China is a poor choice for both nations because it inflicts significant economic, social, and geopolitical costs that outweigh short-term gains. While tariffs or trade barriers might aim to protect domestic industries or score political points, the interconnected nature of their economies and the global system ensures mutual harm. Below, I outline why a trade war is detrimental to both, grounded in data and trends up to April 2025.

Economic Costs

For the United States

Higher Consumer Prices:

Tariffs raise the cost of imported Chinese goods, which dominate U.S. markets for electronics, clothing, and machinery. For example, 2025’s 54% average tariffs on Chinese imports (up from 25% in 2019) have driven up prices for goods like smartphones and appliances by 10-20%.

A 2023 study estimated that Trump-era tariffs cost U.S. consumers $48 billion annually in higher prices. Newer, higher tariffs exacerbate this, with inflation already a concern (U.S. CPI at 3.2% in early 2025).

Disrupted Supply Chains:

China supplies critical inputs like rare earths (80% of U.S. imports) and semiconductors. Tariffs and retaliatory Chinese export bans (e.g., gallium and germanium in 2024) disrupt U.S. manufacturing, delaying production of EVs, solar panels, and defense tech.

The CHIPS Act ($280 billion) aims to boost domestic production, but full self-sufficiency is years away, leaving U.S. firms vulnerable.

Export Losses:

China’s retaliatory tariffs (84% on U.S. goods in 2025) hit American agriculture, aerospace, and tech. Soybean exports to China, once $14 billion annually, fell 50% during the 2018–2019 trade war and haven’t fully recovered.

Boeing faces reduced orders as China favors Airbus, costing billions in revenue and thousands of U.S. jobs.

Economic Drag:

Trade wars shave GDP growth. The IMF estimated the 2018–2019 tariffs cut U.S. GDP by 0.4% annually. With 2025 tariffs broader and higher, projections suggest a 0.6–1% GDP hit, threatening the U.S.’s $28 trillion economy.

Small businesses, reliant on cheap Chinese inputs, face closures, with 60% reporting profit squeezes in 2024 surveys.

For China

Export Market Shrinkage:

The U.S. is China’s largest single-country market, absorbing ~$450 billion in exports annually (17% of China’s total). U.S. tariffs reduce demand, hitting industries like electronics and textiles, which employ millions.

China’s export growth slowed to 4.7% in 2024, partly due to U.S. tariffs, straining its 5% GDP growth target for 2025.

Job Losses:

Trade-dependent regions like Guangdong face factory slowdowns. During 2018–2019, tariff-related export declines cost ~2 million Chinese jobs. Higher 2025 tariffs could double that, risking social unrest in a slowing economy.

Supply Chain Relocation:

U.S. tariffs push firms to shift manufacturing to Vietnam, Mexico, or India. Foreign direct investment in China dropped 8% in 2024, partly due to trade uncertainty, weakening its industrial base.

Apple and Tesla, for instance, expanded production in Southeast Asia, reducing China’s leverage as the “world’s factory.”

Currency Pressure:

Reduced exports weaken the yuan, forcing China to spend reserves (~$3.45 trillion) to stabilize it. In 2024, China sold $100 billion in U.S. Treasuries partly to defend the yuan, risking reserve depletion if tariffs persist.

A weaker yuan raises import costs (e.g., oil, food), fueling inflation and squeezing consumers.

Shared Economic Pain

Global Spillovers: The U.S. and China account for ~40% of global GDP. Their trade war disrupts supply chains, raising costs worldwide. The WTO reported a 1.7% drop in global trade growth in 2024 due to U.S.-China tensions.

Stock Market Volatility: Tariff announcements tank markets. In January 2025, U.S. and Chinese indices (S&P 500, Shanghai Composite) fell 3-5% after new tariff hikes, wiping out $2 trillion in global equity value.

Interdependence: Bilateral trade was $643 billion in 2023. Disrupting this flow hurts both—U.S. firms lose Chinese markets, while China loses dollar inflows critical for its trade surplus (~$600 billion).

Social and Political Costs

For the United States

Consumer Burden:

Higher prices hit low-income households hardest, who spend a larger share on tariffed goods. A 2024 study found tariffs raised costs for the average U.S. family by $1,300 annually.

Political backlash grows as inflation erodes purchasing power, with 62% of Americans opposing tariffs in 2025 polls when informed of price hikes.

Regional Pain:

Tariff-hit sectors like agriculture (e.g., Midwest farmers) face bankruptcies. Federal bailouts ($28 billion in 2019) are unsustainable, straining budgets amid a $2 trillion deficit.

Polarization: Trade wars fuel divisive rhetoric, with tariffs cast as “tough on China” but criticized as economic self-harm. This deepens partisan gridlock, complicating policy responses.

For China

Social Stability:

Job losses and factory closures risk protests, a red line for the Communist Party. Youth unemployment hit 17% in 2024, and trade disruptions could push it higher, threatening Xi Jinping’s “common prosperity” narrative.

Rising costs from yuan depreciation pinch urban consumers, who already face property market woes (e.g., Evergrande’s $300 billion debt crisis).

Nationalist Pressure:

Retaliatory tariffs rally domestic support but lock China into escalation. Backing down risks appearing weak, limiting diplomatic flexibility.

Censorship stifles dissent, but online grumbling about economic hardship grows, challenging state control.

Shared Social Strain

Worker Displacement: Both nations see job shifts—U.S. manufacturing gains are offset by retail losses; Chinese factories lose orders but can’t quickly pivot to domestic markets.

Inequality: Trade wars favor connected industries (U.S. steel, Chinese state firms) while small businesses and consumers bear costs, widening wealth gaps.

Geopolitical Costs

For the United States

Allied Frictions:

Tariffs disrupt allies’ supply chains (e.g., EU, Japan rely on Chinese components). In 2024, 70% of G7 firms reported higher costs from U.S.-China trade barriers, straining partnerships.

Pushing allies to “choose sides” risks alienating neutral economies like India or ASEAN, who benefit from China trade.

De-dollarization Push:

China’s retaliation (e.g., selling $760 billion in Treasuries by 2025) fuels de-dollarization efforts. While the dollar remains dominant (60% of reserves), BRICS nations’ shift to yuan or gold erodes U.S. financial leverage long-term.

Escalation Risk:

Trade wars inflame tensions over Taiwan or the South China Sea. Economic friction raises the odds of miscalculation, with 2025 U.S. naval patrols near China up 20% from 2024.

For China

Diplomatic Isolation:

Aggressive trade responses (e.g., rare earth bans) alienate partners like Australia and South Korea, who face shortages. In 2024, 10 ASEAN nations deepened U.S. ties, wary of China’s assertiveness.

China’s “wolf warrior” diplomacy amplifies perceptions of belligerence, weakening soft power.

Regional Pushback:

Tariffs accelerate supply chain shifts to India and Vietnam, reducing China’s regional economic clout. ASEAN trade with China grew only 3% in 2024, lagging India’s 7%.

Neighbors like Japan and Taiwan bolster defenses, with Japan’s 2025 military budget up 10%, citing China’s trade coercion.

Global South Strain:

Belt and Road projects (~$1 trillion invested) face delays as China diverts funds to counter tariffs, risking credibility in Africa and Latin America.

Shared Geopolitical Risks

Fragmented Global Order: Trade wars fracture globalization, splitting markets into U.S.- and China-led blocs. The WTO’s dispute system is paralyzed, with no resolutions since 2023.

Military Tensions: Economic decoupling fuels arms races. China’s navy (370 ships) and U.S. carrier deployments (11 globally) signal readiness for conflict, raising stakes over Taiwan.

Climate Setbacks: Trade barriers disrupt green tech flows (China produces 60% of solar panels). U.S.-China climate talks stalled in 2024, delaying COP goals.

Why Neither Wins

Mutual Dependence: The U.S. relies on Chinese goods and rare earths; China needs U.S. dollars and markets. Trade wars disrupt this balance, with no quick substitute—U.S. reshoring covers <10% of imports, and China’s domestic demand can’t absorb export losses.

Collateral Damage: Tariffs ripple globally, hitting allies and neutrals. The IMF estimates a 1.5% global GDP loss by 2026 if 2025 tariffs persist.

No Clear Victory: Historical trade wars (e.g., Smoot-Hawley 1930) show protectionism rarely delivers promised gains. U.S. manufacturing added only 400,000 jobs post-2018 tariffs, far below claims, while China’s pivot to other markets (e.g., EU) is slow and costly.

Political Trap: Leaders face domestic pressure to escalate (U.S. voters: 52% back tariffs; Chinese nationalism demands retaliation), but escalation entrenches losses, locking both into a losing cycle.

A Better Path

Cooperation, not conflict, aligns with mutual interests:

Economic Gains: Lower tariffs boost trade, cutting consumer costs and fueling growth. Pre-2018 trade supported 2.6 million U.S. jobs and China’s middle class.

Global Stability: Joint efforts on climate, AI safety, or pandemics leverage both nations’ strengths—U.S. innovation, Chinese scale.

De-escalation: Phased tariff reductions, as seen in 2020’s Phase One deal, stabilize markets without either side “losing face.”

In sum, a trade war is a bad choice because it hammers consumers, jobs, and growth while risking broader conflict. The U.S. and China lose more from disruption than they gain from protectionism, and the world pays the price for their rivalry. Interdependence, however inconvenient, demands restraint over reckless escalation.