Market Data 
In a famous tweet in 2018, Donald Trump, the then-President of the United States, wrote that when a country (the United States) loses billions of dollars in trade with nearly every country it trades with, “Trade wars are good, and easy to win.”
In recent weeks, as the Trump administration imposed tariffs exceeding 145% on US imports from China and initiated a new, even more dangerous trade war than before, the US Secretary of the Treasury, Scott Bessent, justified this trade war by stating: “I think it was a big mistake, this Chinese escalation, because they’re playing with a pair of twos, […]. What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them.”
In short, the Trump administration believes that against China and any other country with a bilateral trade deficit, it possesses a form of superiority known as escalation dominance. According to a definition, escalation dominance “refers to a nation’s ability to control the escalation ladder in a conflict, ensuring that it can escalate or de-escalate the situation to its advantage.” If the administration’s logic is valid, then China, Canada, and any other country that retaliates against US tariffs are indeed following a path of pure loss and damage.
However, this logic may be flawed: in this trade war, it is China that possesses escalation dominance. The United States imports vital goods from China that cannot be easily replaced or produced domestically in the near future, except at very heavy and prohibitive costs. Reducing this dependence on China might be a justifiable goal for action, but starting this war before achieving its results could lead to an almost certain and costly defeat. In Scott Bessent’s own words, it is Washington, not Beijing, that has bet all its capital on a losing hand.
The Trump administration’s claims are incorrect in two respects. Firstly, in a trade war, both sides suffer because both lose access to goods and services that their economies need and that their people and companies are willing to pay for. Like the start of a real war, a trade war is a destructive act that harms the opposing forces and exposes the domestic front of both sides to damage. If the defending side did not believe it could retaliate against the aggression in a way that could harm the attacking side, it would certainly surrender at the outset.
Bessent’s comparison of a trade war to a poker game is misleading because poker is a zero-sum game: I only win when you lose, and you only win when I lose. But trade, on the contrary, is a positive-sum game: in most cases, the better you do, the more I also benefit, and vice versa. In poker, if you don’t win, there is no guarantee of getting back the amount you put on the table. However, in trade, you immediately receive a return on investment through purchased goods and services.
The Trump administration believes that the more imports there are, the less vulnerability there is, meaning that because the United States has a trade deficit with China (i.e., its imports from China are more significant than its exports to China), it is less vulnerable. This claim is incorrect for arbitrary or theoretical reasons and statistically. Naturally, blocking trade reduces a country’s real income and purchasing power; countries export to earn money and be able to buy goods that they either do not have, or that are very costly to produce domestically.
Furthermore, even if we focus solely on the bilateral trade balance, as the Trump administration does, the outcome for the United States in a trade war with China is not very promising. In 2024, US exports of goods and services to China totaled $199.2 billion, while imports from China reached $462.5 billion, resulting in a trade deficit of $263.3 billion. Suppose we are to predict, based on the bilateral trade balance, which side will “win” a trade war. In that case, the advantage lies with the country with a surplus, not the country with a deficit. As the surplus country, China simply runs the country from the income generated by the sale of goods.
In contrast, as a deficit country, the United States foregoes goods and services that are either not produced domestically or cost-effectively. Money is fungible: if income decreases, expenditures can be reduced, sales in other markets can be pursued, the burden can be distributed nationally, or savings can be used (e.g., through fiscal stimulus). Like most countries with a trade surplus, China saves more than it invests; in other words, it suffers from excess savings. Therefore, adjusting to new conditions is relatively easy. It will not face vital shortages and can sell a large portion of what it usually sells to the United States domestically or export to other countries.
Countries with a trade deficit, like the United States, spend more than they save. In trade wars, these countries are either deprived of access to the goods they need or have to pay more for them (due to tariffs), and these goods, unlike money, are not easily substituted. Consequently, the effects of a trade war are felt in specific industries, regions, or households, which sometimes face shortages of vital and non-substitutable goods in the short term. Additionally, countries with a trade deficit are also capital importers, which makes the United States more vulnerable to changes in investors’ views on the government’s creditworthiness or its economic attractiveness. That is, when the Trump administration suddenly decides to unpredictably disrupt producers’ supply chains with a huge tax, the result will be reduced investment in the United States and an increase in interest rates on its debt.
In summary, the US economy will suffer severe damage in the event of a widespread trade war with China. Undoubtedly, the current level of over 100% tariffs imposed by the Trump administration, if they remain in effect, constitutes such a war. In fact, the US economy will be more damaged than the Chinese economy, and the more the United States increases the level of conflict, the more this damage will intensify. The Trump administration may think it is acting with authority. However, it has exposed the US economy to vulnerability to China’s escalating measures.
If this situation continues and if the Trump administration does not take steps towards strengthening domestic industries and providing domestic goods as substitutes for some imported goods, the United States will likely face severe shortages in the import of vital items, from the basic components of many medicines to inexpensive semiconductors used in cars and household appliances, and to essential minerals for industrial processes, including weapons production. The shock resulting from a sharp decrease or complete halt in imports from China, as Trump claims he is seeking, will lead to a situation of “stagflation,” the macroeconomic nightmare observed in the 1970s and also during the COVID-19 pandemic, precisely when the economy shrinks while inflation grows. In such circumstances, which may be much closer than many imagine, the US Federal Reserve and fiscal policymakers will face only terrible options. They will have no way to prevent unemployment without accepting further increases in inflation.
Indeed, someone who is sitting in a glasshouse should not throw stones at their enemy before securing their position because this action is tantamount to suicide. Trump’s economic attack carries exactly such a risk; since the US economy is somewhat dependent on Chinese sources for vital goods such as medicines, cheap electronic chips, and key minerals, cutting off imports without ensuring alternative sources or sufficient domestic production is an extraordinarily reckless action and may be the result of carelessness and miscalculation. By choosing this reversed path, the Trump administration is inflicting the very damage on the economy that it claims it wants to prevent.
Perhaps, despite Trump’s and Bessent’s repeated and ambiguous statements and actions, all these measures are merely part of a bargaining tactic. But even within this framework, this strategy is more detrimental than beneficial.
The fundamental problem with Trump’s economic approach is that to make his threats credible, he must damage himself to the extent that he is taken seriously, and this means that American markets and households will constantly anticipate instability during his administration. Both American citizens and foreign investors, instead of increasing investment in the US economy, will decrease it and will no longer trust the US government’s ability to abide by agreements, and this is precisely what will make achieving an agreement or reducing tensions very difficult. Consequently, the production capacity of the United States will not increase—rather, it is likely to decline—further enhancing the leverage of China and other countries over the U.S. What is being witnessed is that the Trump administration is starting a war similar to the Vietnam War, but in its economic dimensions and forms; an optional war that will likely soon turn into a quagmire and will undermine public trust, both domestically and internationally, in the honesty and effectiveness of the United States.
[Image Credit: AI-generated illustration created with OpenAI tools (2025)]
Bahram P. Kalviri is a PhD scholar in Political Science at the University of Hyderabad, India. His research explores the dynamics of international relations in the Middle East, with a particular emphasis on China’s evolving engagement in the region. The views and opinions expressed in this article are those of the author.
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