A trade war with China would backfire on Trump — and America

As the Trump administration prepares to take a tougher trade stance on what it sees as unfair Chinese trade policies, China has signaled that it won’t accept such measures lying down, saying it will “resolutely safeguard” its economic interests. It’s the practical pushback to President Trump’s now years-long verbal jabbing at China, from “They’re ripping us off, folks,” to “So much for China working with us — but we had to give it a try.”

China is now, and has been for almost a decade, the largest foreign buyer of U.S. debt, with Japan a close second. Holding nearly $1.2 trillion in Treasurys, China hasn’t actually increased its investment all that much over the past few years, and there have been several times where the Chinese central bank has halted new purchases and sold old holdings, each time triggering concerns in the United States that a new and dangerous era for U.S.-China relations was about to dawn.

For now, these are theories. Yes, there have been intermittent policy spasms, such as President Barack Obama confronting China over human rights in Tibet or the Trump administration opening an anti-dumping case directed at China’s sheet metal industry. But Trump, as president, has been less strident about China than candidate Trump, presumably because he needs Xi to help contain North Korean missile threats.

The flip side, of course, is that the United States remains the largest market for Chinese goods (other than the European Union as a whole), and given that more than a third of China’s foreign reserves are tied up in U.S. debt, the Chinese are indeed vulnerable to the vicissitudes of Washington policy and the ebbs and flows of the American economy. Officials in Beijing, however, are under no illusions, and have managed their relationship with the United States with a clear understanding of America’s economic and military clout.