[Choi Junyoung's World+] Trump’s Tariff War Is Tilting in China’s Favor

Aiming to Revitalize U.S. Manufacturing and Contain China
Soaring Prices and Impact on Low-Income Groups
Domestic Side Effects Lead to Backlash

The tariff war initiated by President Trump is becoming increasingly complex over time. On the 2nd (local time), President Trump imposed tariffs ranging from 10% to 50% on products from 185 countries at the White House. Several countries, including Vietnam, which faced high tariffs, indicated that they might lower or even eliminate tariffs on American products, making Trump’s tariff strategy appear successful. However, the situation began to change as several countries, including China, strongly opposed the tariffs.

China decided to impose retaliatory tariffs of up to 125% in response to the U.S. tariffs and countered by banning exports of strategic materials, including rare earth elements. President Trump announced that while tariffs on China could be raised up to 145%, other countries, excluding China, would only face a 10% tariff for 90 days, attempting to narrow the tariff conflict line to a confrontation with China.

However, the situation is unfavorable for the U.S. People anticipating price increases due to tariffs began hoarding goods, causing inflation to surge. Additionally, U.S. financial markets have been shaken by a sharp rise in U.S. Treasury yields. When forecasts emerged that the price of iPhones, widely used by Americans, could double, the U.S. government took a step back by excluding smartphones, computers, semiconductors, and other items from the tariff list.

President Trump aims to achieve multiple goals simultaneously through tariffs: ending unfair trade practices, resolving trade deficits, revitalizing American manufacturing, and containing China. The problem is that these goals are mutually contradictory and, more importantly, have little impact on the ultimate goal of pressuring China. The share of U.S. exports in China’s total exports decreased from 17.4% in 2020 to 14.8% in 2023. The proportion of U.S. exports in China’s GDP also dropped to around 2%. Even if China’s exports to the U.S. were halted, China could mitigate much of the damage by expanding its domestic market. Contrary to President Trump’s expectations, the greater damage from trade disruption falls on the U.S.

President Trump promised to bring labor-intensive jobs back to the U.S. through tariffs and revive domestic manufacturing. To perform these tasks currently handled by developing countries within the U.S., sufficient labor and capital are required. The problem is that very few Americans are willing to engage in such work. According to a 2024 U.S. survey, only 25% of respondents thought it would be preferable to leave their current jobs and work in manufacturing. Furthermore, the U.S. is currently hostile to immigration. As we have experienced, manufacturing can only thrive where affordable, quality labor is sufficiently supplied, which is not the case in the current U.S. situation. It seems no one has told President Trump, who made his fortune in real estate, that manufacturing is tough and tedious work.

There are many problems from the capital perspective as well. Relocating factories to the U.S. requires cost considerations. In addition to labor costs and supply chain access costs, the maintenance of tariffs is an important factor. U.S. labor costs are very high, and supply chains are severely inadequate. It is difficult to expect that U.S. tariffs will remain high even after President Trump leaves office in four years.

It is estimated that for an iPhone manufacturer to relocate 10% of its Asian supply chain to the U.S., at least three years and over $30 billion will be required. President Trump has not been able to confirm whether such an investment would be profitable. Even if low-value-added jobs return nationwide, the benefits are minimal. Based on value added per worker, the U.S. ranks first among major countries. Over 20% of U.S. manufacturing exports are based on high-tech products with intensive research and development.

The U.S. has achieved income growth and sustained economic growth by shifting from low-wage jobs to high-value-added activities such as services and research and development. Since 1990, over 5 million manufacturing jobs have been lost, but 11.8 million diverse jobs have been created. Reversing this trend seems unlikely to benefit the U.S.

A bigger problem is that tariffs could harm low-income groups who rely heavily on inexpensive imported products. For example, bicycle prices sold in the U.S. have already risen by at least 50%. Even if products are produced domestically, most of the necessary equipment and intermediate goods must be imported, and tariffs increase their prices, which are ultimately reflected in retail prices.

The tariff war started by President Trump is making all trade partners suffer. Ultimately, the winner of this war depends on who can endure longer. Naturally, China, whose government can control everything and whose people are accustomed to patience, has the advantage. Until now, President Xi Jinping has rejected experts’ recommendations to inject large-scale fiscal spending and promote consumption to stimulate the domestic economy. In the process, China has been able to accumulate fiscal resources and capacity. Now, if China begins to actively stimulate domestic demand and revitalize the economy, issues previously pointed out as problems in the Chinese economy may be resolved, increasing the likelihood of the Chinese economy moving in a more desirable direction.

Seeing the flood of imports naturally creates a sense of crisis and a desire to block them using tariffs. However, blindly following public demands often causes greater side effects. We will have to watch what tariff-related cards President Trump will play in the future, but so far, the trend seems to be helping China significantly. For us, who consider both the U.S. and China as major trading partners, this inevitably deepens our concerns.

Choi Jun-young, Specialist at Yulchon LLC (Global Law & Policy)