Trump and Xi are preparing for a war nobody wants

Shortly before US President Donald Trump pulled out a giant cardboard tariff chart to usher in "Liberation Day" and upend the post-World War II economic order, he made a telling comment that largely flew under the radar.

"The United States can no longer produce enough antibiotics to treat our sick," Trump said in the White House Rose Garden on 2 April. "If anything ever happened from a war standpoint, we wouldn't be able to do it."

If only he had stopped there, Trump would've been hard-pressed to find anyone who disagreed with him. Of all the varying reasons he's given for the tariffs — balancing trade, generating revenue, creating leverage for deals — nearly everyone in Washington agrees on the need to restore the US manufacturing base to ensure self-reliance in the name of national defence.

But, as usual, Trump went much further. He quickly moved from pitching tariffs as a way to strengthen America in a potential war with China to imposing them on longstanding allies, sending global markets into a tailspin and threatening a severe economic blow to nations the US would need in any military conflict with the world's second-largest economy.

Even after Trump announced a 90-day pause, it's become clear that the US and China are reshaping the global economy to prepare for a war with each other that neither actually wants. Everyone else on the planet must deal with the fallout, while thinking long and hard about whether to trust either country — or to arm up themselves.

Xi Jinping and his comrades in the Communist Party share Trump's goal of self-reliance. The Chinese leader has spent the better part of a decade trying to reduce his nation's dependence on the US for strategic goods, just as successive US administrations have sought to prevent Beijing from obtaining high-end technology that could one day be used against American soldiers.

Yet the convergence between the two leaders appears to run deeper. In many ways, they both want what the other has: Trump desires China's world-beating manufacturing prowess, and Xi is envious of the US's control of advanced technology as well as the global financial system. And when it comes to style, both have shown a willingness to take drastic policy measures to achieve their goals, with little regard for markets.

Since the start of 2020 alone, Xi has derailed the world's biggest initial public offering, orchestrated a controlled collapse of property prices and locked down the financial capital of Shanghai for months during the pandemic. The Hang Seng China Enterprises Index has dropped about a third in that time, compared with a roughly 60% gain for the S&P 500.

China's moves have demonstrated the country's deep capacity to absorb pain, which has been acute in the finance sector. Many of the nation's best and brightest young workers saw their salaries slashed — some were even forced to repay bonuses — just as a deflationary slowdown took hold. All the while, the Communist Party's world-beating surveillance has helped keep a lid on public dissent.

Xi has also recorded some significant wins over the past few years, including a signature Made in China 2025 initiative that has seen the country rise up to dominate some of the world's most cutting-edge industries.

As of 2024, China had achieved a global leadership position in five of 13 key technologies tracked by Bloomberg Economics and Bloomberg Intelligence, including solar panels, high-speed rail and lithium batteries. It's catching up fast in seven others, pharmaceuticals and artificial intelligence among them.

Those gains have given officials in Beijing a quiet confidence that they are well positioned to overtake the US in the long run, all while keeping hold of China's vaunted manufacturing sector.

Just as Trump considers factories crucial for national security, Communist Party officials want to maintain the ability to make everything they need if the economic fight eventually turns into a shooting war.

One former party official recently told me they simply couldn't understand why the US gutted its manufacturing base over the years in order to make the finance sector rich. The person also made a point that's been echoed by economists and manufacturing experts: Nothing short of a fundamental reordering of the global economy would make it cheap enough for factories in a vast range of industries to move back to the US.

Trump is now on a mission to do just that.

The range of tariffs Trump unleashed on the world last week — urged on by top adviser Peter Navarro, the Death by China author who has long pushed to reshore manufacturing — go far beyond what he pledged on the campaign trail. Even after announcing the 90-day pause on tariffs for non-retaliating countries, Trump hiked duties on China to 145%, well above the broadbased 25% tariffs he imposed on the country in his first term.

In an executive order unveiling the 2 April "reciprocal tariffs," which ran on for more than 4,700 words, Trump declared that large and persistent trade deficits that had built up over nearly a century had "compromised military readiness" and suddenly constituted "an unusual and extraordinary threat" to America's economy and national security. "For decades, our country has been looted, pillaged, raped and plundered by nations near and far, both friend and foe alike," Trump said in the Rose Garden.

But there was one major problem: The duties outlined on Trump's tariff chart had little to do with reciprocity on actual tariff rates and everything to do with trade deficits. That resulted in a host of US allies and security partners getting slammed, along with a range of poorer nations like Bangladesh and Cambodia, whose economy is more than 600 times smaller than that of the US.

To Trump, however, any country that sells more to the US than it buys represents a national security threat, no matter if it's the world's smallest island nation or a remote territory only populated by penguins. He wants those jobs.

"The army of millions and millions of human beings screwing in little, little screws to make iPhones, that kind of thing is going to come to America," Commerce Secretary Howard Lutnick said this week on Face the Nation.

Whether Americans want those jobs is another question. This week, X users passed around a 2017 clip of comedian Dave Chappelle tearing into Trump's plans to bring back jobs from China, saying nobody wants to pay $9,000 for an iPhone. "Leave that job in China where it belongs," Chappelle bellowed to cheers and laughter in the Netflix special. "None of us want to work that hard."

Even Xi has had a tough time convincing China's 1.4 billion people that toiling in a factory is worthwhile — state media reports have noted how younger migrant workers would rather take lower-paying delivery jobs than stand on an assembly line for eight-plus hours a day. Xi's government has spent the past few years trying to whip China's working classes into shape, urging kids to avoid video games and the slacker lifestyle known in China as "lying flat."

During a visit to a vocational school in 2021, Xi implored students to take jobs that help the country's long-term goals instead of looking to climb the corporate ladder. "For the majority, there's no differentiation of lowliness or nobleness of one's job," he said at the time. "As long as you're needed by society, as long as you're respected and earn a decent pay, that is a good job."

According to Trump's defenders, hitting allies with steep tariffs — even in a way that defies economic logic — is all a vehicle to bring them to the negotiating table. Bill Ackman, one of Trump's most prominent billionaire supporters and a champion of the 90-day pause, wrote after the president's Rose Garden announcement: "Sometimes the best strategy in a negotiation is convincing the other side that you are crazy."

But in practice, Trump has dealt a historic blow to US credibility that won't be forgotten anytime soon — even if some countries negotiate new arrangements before their 90 days are up.

Back in the 1970s, when China was reeling from Mao Zedong's Cultural Revolution and the US military was mired in Vietnam, American diplomats dealt with similar distrust while working to prevent allies from obtaining a nuclear weapon. In a now-declassified cable to his superiors in Washington in 1976, the US ambassador in Seoul wrote that then-dictator Park Chung-hee's "doubts about the reliability of the US as a long-term ally" are what "initially led him to seek an independent nuclear deterrent."

Nearly 50 years later, American allies around the globe — and particularly those like South Korea, Taiwan and Japan that rely on the US for security — are surely having the same doubts. Publicly the Asian security partners have resisted saying anything critical, as their leaders seek deals that can bring immediate tariff relief.

But elsewhere in the world, some of America's oldest allies didn't hold back. Germany's outgoing vice chancellor, Robert Habeck, likened Trump's tariffs to Russia's invasion of Ukraine and said the "magnitude and determination of the response must be commensurate." French President Emmanuel Macron urged companies in the European Union to pause investments in the US, saying it would send the wrong message to "invest billions in the American economy at the same time they are hitting us."

"The 80-year period when the United States embraced the mantle of global economic leadership, when it forged alliances rooted in trust and mutual respect, and championed the free and open exchange of goods and services is over," Canadian Prime Minister Mark Carney declared after Trump unveiled his tariff plans. "While this is a tragedy, it is also the new reality."

In a matter of a week, Trump has managed to both hurt allies' ability to spend on defense and made it politically more difficult for their leaders to support any future US-led wars.

In his 2020 book Has China Won?: The Chinese Challenge to American Primacy, former Singaporean diplomat Kishore Mahbubani said that the US's greatest mistake was both taking on China without a long-term strategy and eroding trust, particularly by weaponizing the dollar with the use of financial sanctions. Now, instead of isolating China on the world stage, Trump has given Xi an opportunity to increase economic ties across the board, including with many traditional US allies and other nations that could provide crucial logistical and diplomatic support.

While most nations staring down the highest tariffs are rushing to cut deals with Trump, they also know he's unlikely to be around forever. And the rational thing to do now would be to mitigate the damage in the short term, and make sure you're never again in a position to get smacked around — by either the US or China.

Daniel Ten Kate is an executive editor overseeing Bloomberg's economic and government coverage in Asia