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Home Posts The Dragon in the Room: China and Trump’s Trade War

The Dragon in the Room: China and Trump’s Trade War
Tomer Fadlon
7 April, 2025

In his first term, President Trump initiated a trade war mainly targeting China. In his current term, he has launched a broader trade war that spares no country, but it’s primarily aimed at the dragon in the room—the world’s largest export power.

China is a mirror image of the United States—it’s the world’s largest exporter, while the United States is the largest importer. While the United States runs a $1 trillion trade deficit, China enjoys a $1 trillion trade surplus, of which $300 billion is with the United States. While the American manufacturing sector has contracted in recent years, China’s manufacturing sector is thriving, driving a well-oiled and efficient export machine.

Despite the differences between the two economies, the United States and China are the world’s largest economies, responsible for nearly half of global GDP. The United States accounts for about a quarter of global GDP (26.3%), while China accounts for approximately 17%. Therefore, China’s response to Trump’s tariffs—imposing 34% tariffs on American products—caused the markets to drop on Friday.

China’s starting point in the current trade war is different from its position in 2018. On the positive side, and as a lesson from Trump’s first term, China has begun reducing its dependence on exports to the United States and lowering import reliance. In 2018, exports to the United States constituted more than one fifth (21.4%) of China’s total exports, while in 2024, this has dropped to 13.4%. On the negative side, China’s economy is currently more fragile. In 2018, China enjoyed 7% annual growth, the real estate sector was flourishing, and the country was reducing its reliance on exports as a primary growth engine. Seven years later, China’s growth ceiling stands at 5% per year, the real estate sector is in crisis, private consumption signals deflation risks, and exports have returned to being a central engine for the local economy.

The day after Trump announced the imposition of 34% tariffs on China, in addition to the previously imposed 20%, Fitch Ratings downgraded China’s credit rating by one grade due to the immense challenges facing its economy. Another measure signed by Trump will impact Chinese e-commerce and is expected to take effect on May 2. For years, American consumers benefited from ordering small packages (up to $800) from around the world without additional customs fees. This market is estimated at around $60 billion annually, with about half of the sum coming from Chinese websites like Temu and Shein.

These moves put China in a problematic position as the world’s largest consumer market gradually closes its doors. The Chinese response to these barriers is expected to be twofold. Domestically, efforts will continue to stimulate private consumption and encourage growth engines not dependent on exports. Externally, China will take a firm stance against tariffs by imposing reciprocal tariffs and additional restrictions against the United States until a balance point is reached, leading to negotiations as happened during Trump’s first term. At the same time, China will attempt to increase exports to other countries as an alternative to the American market.

Many argue that an opportunity has arisen for China to fill the vacuum left by the United States as the leader of free trade, but this situation raises red flags among China’s trade partners, including Israel. The main concern is that China’s surplus offerings might harm local industries that cannot compete with the flood of goods from China. It is not surprising that many anti-dumping investigations against China have been launched worldwide in the past year. The closure of the American market is expected to intensify this trend and keep many Israeli manufacturers awake at night.

Topics: Economics and National Security, Israel-China Policy Center - The Diane and Guilford Glazer Foundation
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