Going off the rails: Will Trump's trade war with China backfire on US economy?

The US and China appear locked in a prolonged and bruising standoff over trade, a deadlock threatening to send shockwaves through global markets and economies. The escalating trade war between the two countries shows no signs of abating and if experts are to be believed, the longer it drags on, the clearer it becomes that the US economy may be suffering more than its rival.

Experts said that Trump’s strategy seems built on the hope that Chinese President Xi Jinping will eventually buckle under economic pressure and seek a truce. But that assumption is proving misguided. If anything, it’s the US that appears increasingly eager for a resolution, while China stands its ground, carefully managing the damage and leveraging the trade standoff to its strategic advantage.

With China tightening trade ties in Asia and using nationalist messaging, the US risks economic vulnerability and experts warn the country may be headed toward recession.

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Even after Trump’s much-publicised 90-day pause on some of his so-called “Liberation Day” tariffs — a move made to calm a jittery stock market — US tariff rates remain at their highest level in over 90 years. For the average American household, this amounts to a hidden tax hike.

Economists have estimated that these tariffs could cost a middle-income family an extra $1,700 a year, a financial strain that could weigh on consumer spending and push the country closer to recession.

China certainly faces its own economic challenges, including underemployment and a deflationary cycle that shows little sign of ending. The trade war could cost the country millions of jobs and spark domestic unrest, yet China has shown little sign of caving. Instead, Beijing has worked proactively to shield its economy from American pressure, tightening trade ties across Asia, particularly with Vietnam.

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Xi Jinping’s recent visit to Vietnam, which saw the signing of dozens of trade and cooperation agreements, highlights China’s efforts to recalibrate supply chains and deepen regional partnerships amid rising US tariffs. Vietnam, an industrial hub heavily reliant on Chinese imports and US exports has been working to adjust its trade practices under pressure from Washington, even as it negotiates to avoid its own set of American tariffs.

Beyond Vietnam, China’s broader response has revealed its long-term preparation for a conflict like this one. Beijing’s countermeasures have targeted American vulnerabilities with a mix of retaliatory tariffs, export restrictions on critical minerals, and investigations into US companies operating in China — a calculated and flexible approach designed to maximise leverage while minimising domestic disruption.

One of China’s most powerful weapons in this standoff is its control over rare earth elements, which are vital to US industries ranging from electronics to defence manufacturing. China supplies 72 percent of the world’s rare earths and holds a near-monopoly on six of the heavy rare earths used in high-tech and military applications.

The US military, for example, depends on these materials for producing everything from submarines to fighter jets — a single F-35 uses nearly 900 pounds of rare earth metals, while a submarine can require more than four tons.

China has already moved to restrict the export of these minerals, along with rare-earth magnets, where it controls 90 percent of the global supply. This places the US in a vulnerable position, as developing alternative sources for rare earths is a slow, costly and environmentally challenging process that could take decades.

Beijing’s response to Trump’s tariff offensive has gone beyond the economic front. The Chinese government has placed officials on what it calls “wartime footing” and launched a global diplomatic push to rally opposition against U.S. trade policies. Chinese state media, directed by Communist Party propaganda authorities, have turned to nationalist messaging, including the circulation of old speeches by Mao Zedong vowing defiance against foreign pressure.

This hardline response contrasts with China’s earlier attempts to avoid a trade conflict, which included months of diplomatic outreach aimed at preserving what it has consistently described as a mutually beneficial trade relationship with the United States. But Trump’s tariffs have forced China’s hand, much as similar actions did in 2010, when Beijing halted rare-earth exports to Japan during a territorial dispute — a move that quickly pushed Tokyo into conciliation.

While Trump may believe alternative rare-earth sources can be found, the reality is that mining and processing these materials in the U.S. faces steep regulatory and environmental hurdles, making China’s dominance difficult to dislodge in the short term.

A full-scale trade war is likely to hurt both nations, but economic forecasters increasingly warn that the US may feel the pain first. Unlike Trump, Xi has the political cushion to frame the conflict as another chapter in China’s long struggle against Western interference, using nationalism to deflect domestic dissatisfaction and strengthen his grip on power.

There’s no question that China’s trade practices merit tough scrutiny and standing up to unfair competition is the right instinct. But Trump’s tariff-first strategy is isolating America from its allies and exposing its own economic weaknesses. According to experts, in the end, Trump hasn’t brought a winning hand to the table but has brought a tariff to a gunfight.