To The Moon

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The trade war between the United States and China is far from over — in fact, the situation has deteriorated beyond a mere stalemate. Since the London meeting, bilateral trade has failed to rebound, and as August approaches, tensions threaten to spiral into a full-blown collapse once again.

Today, Chinese goods entering the U.S. face a punishing 30% tariff, while American exports to China are subject to a 10% import tax. On the surface, it seems as though the U.S. administration has secured a tactical win: tripling the tariff burden on Chinese exports should, in theory, significantly dent their sales into the American market. But as we know, U.S. consumers ultimately foot the bill for higher import taxes — effectively turning the private sector into an unwilling financier of government revenues. Indeed, the real beneficiary of these tariffs has been the U.S. Treasury, which has collected billions to help offset fiscal programs like Trump’s tax cuts. Perhaps this explains the visible frustration of U.S. business leaders like Elon Musk.

Yet while Chinese exports to the U.S. have undeniably declined, American businesses are also feeling the pain. U.S. exports to China plummeted from $11 billion in May 2024 to just $6.5 billion this May, a staggering 41% year-on-year decline. Chinese consumers simply aren’t buying American goods — underscoring the limits of tariff-based brinkmanship.

China, for its part, remains confident in its ability to replace most U.S.-made goods domestically over time. While some components, such as advanced AI chips, are currently irreplaceable, few doubt that China will close the gap within a year or two.

The Next Front: Oil, Allies, and Secondary Sanctions

If U.S. Trade Representative Scott Besson has his way, Washington’s trade offensive will broaden beyond bilateral tariffs. In a move many see as senseless overreach, Besson is now attempting to block China from purchasing Russian and Iranian oil — commodities Beijing sees as critical to maintaining competitive energy prices during a trade war.

Besson has floated the idea of imposing secondary tariffs of up to 100% on any country that buys sanctioned Russian oil — and he is urging U.S. allies in the EU and G7 to follow suit. The logic is straightforward: pressure Beijing by threatening to cut off its access to Western markets if it keeps importing Russian crude.

Here, America’s leverage over Europe is undeniable. The EU exports massive amounts to the U.S.: $130 billion in pharmaceuticals and metals, $67 billion in cars and parts, and $27 billion in steel, aluminum, and alcohol. Meanwhile, the U.S. exports just $70 billion to Europe — leaving Brussels far more exposed. This imbalance emboldens Washington to demand EU cooperation against China.

Targeting Transshipment: The Final Card

The next — and perhaps most dangerous — U.S. tactic under consideration is to crack down on third-country transshipments of Chinese goods. Since Chinese products often reach the U.S. through intermediate countries such as Mexico, Vietnam, Japan, and Korea, the White House is exploring ways to impose blanket tariffs on those imports if they contain Chinese components.

This would put an estimated 70–80% of Chinese exports to the U.S. at risk, affecting over 2% of China’s GDP. But the collateral damage would be global: punishing allies and trade partners from Canada to the EU, driving up prices for U.S. consumers, and potentially increasing direct Chinese exports to the U.S. as buyers bypass third-party routes. In other words, a self-defeating escalation seems increasingly likely.

Whether Trump will actually pull the trigger on this remains uncertain. His administration continues to frame these hardline moves as “fixing the trade deficit,” but the risks of alienating allies and harming U.S. consumers are obvious.

The Power of Infrastructure: How China is Fighting Back

While Washington focuses on tariffs and sanctions, Beijing is doubling down on its long-term industrial strategy — investing in infrastructure and energy to power its manufacturing base and future technologies.

A prime example: China’s massive $167 billion hydropower megaproject in Tibet. This dam, three times the size of the already-giant Three Gorges Dam, is expected to generate an unprecedented 300 million megawatt-hours, more than the entire power output of some European nations.

By scaling up its energy capacity, China ensures that it can continue to support its manufacturing ambitions — including AI chips, electric vehicles, and advanced robotics — and lower production costs through economies of scale. In 2024, China already produced more than 10 terawatt-hours of electricity, more than double the U.S. and quadruple Europe.

Western policymakers are understandably alarmed. If China can sustain such industrial momentum while transitioning to cleaner energy, it may gain an insurmountable advantage in the coming decade.

Contrasting Economic Models: U.S. vs. China

The U.S., by contrast, is pursuing growth through tax cuts and fiscal deficits — a strategy that risks adding $3.4 trillion to the national debt by 2034, with no guarantee of increased productivity. Wealthy Americans may simply recycle gains into existing assets rather than new projects, undermining job creation and innovation.

China’s dam, however, is a public works project that stimulates the economy directly, creating jobs, boosting domestic consumption, and channeling funds into engineering, construction, and materials industries. Not surprisingly, shares of Chinese cement makers, iron and steel producers, and engineering firms have surged on the back of this spending.

The result: China posted 5.4% year-over-year GDP growth in Q1, outpacing every G7 economy, with especially strong gains in electric vehicles, 3D printing, and robotics. The contrast with a contracting U.S. economy in the same period could not be clearer.

The Road Ahead: Can China Be Stopped?

As Washington and its allies consider increasingly aggressive measures to contain China, the question remains: can tariffs and trade restrictions truly stop Beijing’s industrial rise?

On one hand, cutting off transshipments and sanctioning Chinese imports could inflict serious short-term damage, disrupting over 2% of Chinese GDP and hammering global supply chains. On the other hand, these moves risk isolating the U.S., raising costs for consumers, and strengthening China’s resolve to build self-sufficiency even faster.

Meanwhile, China’s strategy of building infrastructure and investing in industrial capacity seems more sustainable than Washington’s reliance on punitive tariffs and deficit spending. If Beijing maintains its current trajectory — especially in sectors like AI, semiconductors, and green energy — it could emerge even stronger in the long run.

Final Thoughts

The trade war has morphed into a global economic struggle with no clear end in sight. Washington’s tariffs have generated short-term revenue and inflicted pain on Chinese exporters, but at the cost of higher prices and strained alliances.

Beijing, meanwhile, is playing the long game — betting on infrastructure, energy, and industrial policy to secure its future. As the U.S. contemplates harsher measures, including transshipment crackdowns and secondary sanctions, the risk of backfiring increases.

At its core, the U.S.–China trade war is about competing visions of economic leadership. Washington seeks to punish its way to dominance; Beijing is building its way there.

Only time will tell which model prevails. But for now, one thing is clear: neither side is backing down.

What do you think? Can U.S. tariffs and sanctions contain China — or will China’s industrial momentum prove unstoppable?

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.

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