The U.S. And Iran Are Fighting A War - And China Is Winning

 

The following insightful post is by Nobel Prize-winning economist Paul Krugman:

Make America Great Again? Hah. Donald Trump has weakened us with astonishing speed. Under his “leadership” America’s influence, reputation and credibility have peeled away like the liner in the Reflecting Pool.

The disintegration of U.S. power was well underway before Trump started his war on Iran, but the pace of decline has accelerated sharply since the magnitude of our defeat started becoming apparent.

And when future historians write about this tale of self-immolation, they may well do so in Mandarin.

China hasn’t been a direct combatant in the third Gulf war, and its support for Iran has, until recently, been discreet. (China is now reportedly preparing to send Iran advanced munitions — Phillips O’Brien suggests that it is “going in for the kill.”) But China has clearly relished our humiliation. And both the way the war has played out and China’s role have drastically shifted the global balance of power in China’s favor.

China has been a serious geopolitical rival to the United States for some time. China’s manufacturing sector overtook the US in 2010, and the gap has continued to grow (I’ll explain the line labeled “US+EU” shortly):

And China’s role as the workshop of the world inevitably gives it a great deal of geopolitical influence.

However, there were a number of factors that, two years ago, arguably still gave an America a power advantage despite China’s economic weight and manufacturing prowess. These factors included:

· America still led the world in science and cutting-edge technology.

· The U.S. military appeared to have vastly better weapons and leadership than any other nation’s.

· The dollar’s dominant role in international transactions gave the United States enormous financial clout, including the ability to cut other nations out of the global payments system.

· Above all, the U.S. wasn’t alone. We were the leader of history’s most successful alliance system, nations bound together not just by mutual interests but by shared democratic values.

Yet Trump and his lackeys have quickly squandered all of these advantages.

A great deal has been written about the Trump administration’s attack on science, which is a topic largely separate from the Iran war. As one recent discussion put it, Trump officials

have orchestrated a series of attacks on scientists and their laboratories, implemented through funding cuts, grant interruptions, and immigration restrictions. Scientists are gravitating to Canada, Europe, and China, and we are rapidly losing the depth of our innovative and essential scientific community.

The undermining of other U.S. sources of strength was also underway before the Iran war, but the war has accelerated the downward spiral.

Even before the bombing of Iran began, some observers worried about the state of the U.S. military. Had U.S. military leaders adapted to the new world — revealed by the war in Ukraine — of cheap, ubiquitous drones? How much damage had the pro-testosterone, anti-intellectual leadership of Pete Hegseth already done? Now we know the answers to these questions, and America’s military reputation has nose-dived.

Oh, and as a December 2025 report from the Center for Strategic and International Studies points out, a Chinese supply chain underpins “the architecture of modern drone warfare.”

America’s dollar-linked financial power has also sharply declined. True, as I wrote a month ago, “The dollar’s role as the dominant currency for ordinary business is not under threat.” However, the war has demonstrated that, thanks in large part to China’s underlying economic power, America’s ability to weaponize the dollar has been greatly reduced:

Iran was able to continue selling oil (until the U.S. temporarily imposed a military blockade) and buying essential imports, despite U.S. financial sanctions, by taking payment in yuan and using those yuan to buy Chinese goods. Ships that paid Iran for safe passage through the Strait of Hormuz also paid in yuan (or in cryptocurrency, whose only real use case remains criminal activity.) The details are complicated, but using yuan essentially allows those designated by the U.S. government as rogue actors to fly under our financial radar.

Finally, the war has really put the nail in the coffin of the U.S.-centered alliance system.

America’s alliances have been a fundamental source of global strength since World War II. The line labeled “US+EU” in the chart on manufacturing value added is an indication of how much these alliances used to strengthen us: It shows that even now the US and the democracies of the European Union combined produce more manufactured goods than China, a lead that would be larger if I included the UK, Japan, Canada, etc.

But Trump began torpedoing our alliances on day one. Discussions of the Trump tariffs, even critical ones, don’t emphasize enough the fact that every one of these tariffs broke international agreements made by the United States in the past. So Trumpian tariff policy, by itself, was an announcement to the world that agreements with the U.S. government are worthless. Add to this the demands that Canada become the 51^st state, that Denmark hand over Greenland, and so on, and America had thoroughly lost the trust of its former friends even before the Iran war.

Then came the war. And in the past five months the U.S. has shown itself both erratic and ineffectual. Trump launched a war that, in addition to creating death and destruction, cut off much of the world’s oil supply without so much as consulting other nations. Once the war began, America proved both incapable of imposing its will on Iran and unable either to open the Strait of Hormuz or to protect regional allies.

So now the world neither trusts nor fears us. The chart at the top of this post, drawn from the Pew survey of global attitudes, shows views of the US and China in multiple countries. Even many of our oldest allies, the nations that helped us win World War II and the Cold War, now have a more favorable opinion of China than they do of us.

Let’s be clear: The end of U.S. leadership and China’s growing geopolitical ascendancy are bad things. China is a corrupt autocracy, with little respect for human rights and none at all for democratic values.

But people around the world have concluded that the Chinese are serious people, and that we are not. So America lost the war — and China won.

Trump's Outrageous LIE About China's Wind Energy

 

From PolitiFact.com.

Trump Claims A Deal With China - It Is Not True

Once again, Trump is tooting his own horn. This time he is claiming to have reached a deal on trade with China. But as with most of his claims, it isn't true.

The two nations have only agreed on a broad outline of a plan to be negotiated. No plan has been approved or signed by either country - and it still could be quite a while before one is approved.

Trump did the same thing with Great Britain. He claimed to have done a deal with Great Britain on trade. But all the two nations did was agree on a broad outline to be negotiated. To this date, no plane has been agreed to or signed by either nation.

Trump has put tariffs on virtually every country in the world. He expected most to come to him on bended knee to agree to a trade plan that benefitted the United States. That has not happened.

Despite what Trump may claim, not a single trade deal has been approved, finalized, and signed with any country - NOT ONE!

Trump's economic policy remains a mess - creating chaos and confusion for businesses. Prices continue to rise, and shortages are on the horizon.

Anyone who thinks Trump is winning his worldwide trade war is living in a dream world.

China Is Holding The Best Cards In Trump's Trade War Game

 

There is a metaphor that Trump likes to use. It is about who "has the best cards" is a situation. He used it against President Zelensky in his White House meeting - claiming Zelensky had no cards.

When Trump initiated his Trade War against China by imposing massive tariffs on goods they import to the U.S., Trump ugly thought he was holding the best cards. He was convinced that China needed the U.S. market, and would quickly fold and agree to some tariff rate. He was wrong.

It turns out that China was not hurt by the tariffs as much as some thought they would be. While their exports to the United States have dropped sharply, they still have the rest of the world to buy their exports.

And China has an ace in the hole - and it may be the most powerful card in the deck (and one Trump had neglected to even consider).

China exports 90% of the world's processed rare earth minerals and magnets. And the United States needs those for semiconductors, medical imaging chemicals, cars, robots, offshore wind turbines, and a wide range of military hardware.

China not only responded to Trump's massive tariffs with high tariffs of their own, but they also immediately stopped all rare earth minerals shipments to the United States.

Trump than agreed to an agreement with China to lower the tariffs significantly and engage in trade talks. He thought that would get China to resume the rare earth exports. It didn't.

The trade talks continue. But the rare earth exports are still banned by China. China is smart. They know that's the best card they have to play - and they're not going to play it until they have a good deal (either no tariffs or very low tariffs).

Trump's trade war attack on China was a serious blunder. China is holding the best hand, and Trump is holding the losing hand.

Trump will eventually try to save face by claiming he forced China to agree to a deal that favors the United States. But it won't be true. He "doesn't have the cards" to do that.

Don't Be Fooled - Rationality Has Not Returned To Trump Policies

 Economist Paul Krugman gives us this chart and four points to know about the Trump announcement of a 90 day pause between the U.S. and China with lower tariffs.

Four points:

1. A 30 percent tariff is still really, really high, especially combined with the 10 percent tariff we’re imposing on everyone else. The back of my envelope says that the average U.S. tariff rate will now be around 13 percent, up from around 3 percent when Trump began his trade war. Before all this drama that would have been seen as wildly protectionist.

2. This wasn’t a case of both sides backing down. China only imposed its tariffs as a response to Trump’s gambit, and has reduced them only because he retreated. And retreat he did. This was basically Trump running away from the killer rabbit.

3. The prohibitive tariff has been paused, not canceled. Nobody knows what will happen in 90 days. I’ve long argued that the uncertainty created by Trump’s arbitrary, ever-changing tariffs is at least as important as the level of those tariffs. Well, the uncertainty level has arguably gone up rather than down.

4. This retreat probably hasn’t come soon enough to avoid high prices and empty shelves. Even if shipments from Shanghai to Los Angeles — which had come to a virtual halt — were to resume tomorrow, stuff wouldn’t arrive in time to avoid exhaustion of current inventories.

I guess it’s good news that Trump slammed on the brakes before driving completely off the cliff. But if you think that rationality has returned to the policy process, that the days of government by ignorant whim are now behind us, you’ll be sorely disappointed.

Trump Has Gone Too Far With Tariffs And U.S. Will Be Hurt More Than China

 

The charts above reflect the results of the Economist / YouGov Poll -- done between April 25th and 28th of a nationwide sample of 1,785 adults (including 1,626 registered voters). The margin of error is 3.2 points for adults and 3 points for registered voters.

Who Will Win The Trade War - Trump Or China?

Donald Trump unilaterally started a trade war with nearly the whole world. Currently, he has imposed a 10% tariff on nearly every country in the world - including some islands that are not populated with any humans (only penguins).

But the biggest trade war is with China, and it is the one that will likely affect Americans the most. 

Trump has imposed a 145% tariff on goods imported from China. He claims that China is negotiating with his administration to lower the tariffs.

China has retaliated by imposing a 125% tariff on goods from the United States. They have also banned the shipment of rare earth minerals and rare earth magnets to the United States - which are needed to make  many goods in the United States (including items for our military). And China has also cancelled purchases of agricultural products from the United States (like pork and soybeans). 

And China is denying that any negotiating is happening. I believe them.

China seems to have made the decision to just wait Trump out. They believe he will fold. And they have solid reasons for believing that. Trump has already backed down several times - including on electronics (like iPhones) made in China.

Trump likes to use an analogy of who is holding the best cards. In this situation, it looks like China is holding the best cards - including some Aces. Importing the rare earth minerals and magnets is critical, and the U.S. can't go long without them. Farmers had not fully recovered from Trump's first term tariffs on China, and this may be the end for many of them. And rising inflation is going to be a big problem due to the Trump tariffs.

Trump doesn't like to admit he made a mistake (and rarely does it). But he's painted himself in a corner with the ridiculous and unnecessary tariffs. He may try to paint it as a victory, but Trump will be forced to back down. The only other option is stagflation (rising inflation combined with a recession), which would be disastrous for his Republican cohorts and his own poll numbers (which are already dropping like a rock).

Trump is going to lose this trade war with China. Let's hope he gives in before he craters the U.S. economy.

Trump Blinks First In His Stare-Down With China

 

The orange bully in the White House thought he could bully China into doing what he wants. Although backing down on his "reciprocal" tariffs for other countries, he imposed a huge tariff on Chinese goods imported into the United States. And when China did not back down, he raised that tariff to a ridiculous 145%.

That means an import costing $10 would cost $24.50, and one costing $100 would cost $245. Trump thought the huge tariff would force China to beg for relief. They did NOT! Instead, they put a tariff of 125% on any American goods entering their country - making most American goods too expensive for Chinese consumers. It effectively cuts of the huge Chinese market for American producers.

The trade war stare-down was set. Who would blink first? It was DONALD TRUMP!

It turns out that nearly all of the electronics purchased in the United States are made in Asia - most of them in China. Those electronics (smart phones, TV's, computers, etc.) would be hit with the 145% tariff. And there would be no way for American consumers to avoid the massive price hike. They would have to pay the huge price tag, or do without!

It doesn't take a genius to figure out this was going to make Americans very angry. The U.S. public is already angry over continuing inflation (which Trump had promised to fix during the campaign). Such huge price hikes on electronics is guaranteed to hasten Trump's already declining approval with voters.

Realizing he has badly miscalculated, Trump backed down. He exempted electronics and computer chips from any tariff. 

Meanwhile, China is holding firm - and it doesn't look like they will back down anytime soon. Knowing they could be selling less of many things to the United States, they are shifting their view to other countries - especially the European Union. Other things China could do - refuse to buy any goods from U.S. farmers, restrict what targeted U.S. corporations could export from (or into) China, cut off the supply of rare earth minerals to the U.S., and devalue the Yuan.

It looks like China is in this for the long haul, and willing to accept some economic pain. Trump is not. He's already shown he'll back down when things get too hot.

Trump can't win this trade war. The only question is how much damage will he do to the U.S. economy before he realizes that.

China Bans Shipping Critical Minerals To The United States

China is going to react to the tariffs and proposed tariffs levied against them. Last time they stopped purchasing agricultural products from the U.S., and that is likely to happen again. And they aren't waiting for Trump to take office. They have banned the export of key minerals to this country.

From Reuters.com: 

China has banned exports to the United States of items related to the minerals gallium, germanium and antimony that have potential military applications, it said on Tuesday.

A commerce ministry directive on dual-use items with both military and civilian applications cited national security concerns. The order, which takes immediate effect, also requires stricter review of end-usage for graphite items shipped to the U.S..

"In principle, the export of gallium, germanium, antimony, and superhard materials to the United States shall not be permitted," the commerce ministry said. . . .

Gallium and germanium are used in semiconductors, while germanium is also used in infrared technology, fibre optic cables and solar cells.

Similarly, China's overall October shipments of antimony products plunged by 97% from September after Beijing's move to limit its exports took effect.

China accounted last year for 48% of globally mined antimony, which is used in ammunition, infrared missiles, nuclear weapons and night-vision goggles, as well as in batteries and photovoltaic equipment.

This year, China has accounted for 59.2% of refined germanium output and 98.8% of refined gallium production, according to consultancy Project Blue.

"The move is a considerable escalation of tensions in supply chains where access to raw material units is already tight in the West," said Project Blue co-founder Jack Bedder.

What Nations Think About China And The U.S.

 The charts above are from the Gallup Poll. Approximately 1,000 adults were questioned in each country.

How Should We Deal With The Decline Of China?

The following is most of an op-ed by Bret Stephens in The New York Times:

The main challenge we will face from the People’s Republic in the coming decade stems not from its rise but from its decline — something that has been obvious for years and has become undeniable in the past year with the country’s real estate market crash.

Western policymakers need to reorient their thinking around this fact. How? With five don’ts and two dos.

First, don’t think of China’s misfortunes as our good fortune.

A China that can buy less from the world — whether in the form of handbags from Italy, copper from Zambia or grain from the United States — will inevitably constrain global growth. For the U.S. chip maker Qualcomm, 64 percent of its sales last year came from China; for the German automaker Mercedes-Benz, 37 percent of its retail car sales were made there. In 2021, Boeing forecast that China will account for about one in five of its wide-body plane deliveries over the next two decades. A truism that bears repeating is that there is only one economy: the global economy.

Second, don’t assume the crisis will be short-lived.

Optimists think the crisis won’t affect Western countries too badly because their exports to China account for a small share of their output. But the potential scale of the crisis is staggering. Real estate and its related sectors account for nearly 30 percent of China’s gross domestic product, according to a 2020 paper by the economists Ken Rogoff and Yuanchen Yang. It is heavily financed by the country’s notoriously opaque $2.9 trillion trust industry, which also appears to be tottering. And even if China averts a full-scale crisis, long-term growth will be sharply constrained by a working-age population that will fall by nearly a quarter by 2050.

Third, don’t assume competent economic management.

Last month Donald Trump described the rule of China’s president, Xi Jinping, as “smart, brilliant, everything perfect.” The truth is closer to the opposite. As a young man, according to a peer from his youth, Xi was “considered of only average intelligence,” earned a three-year degree in “applied Marxism” and rode out the Cultural Revolution and its aftermath by becoming “redder than red.” His tenure as supreme leader has been marked by a shift to greater state control of the economy, the intensified harassment of foreign businesses and a campaign of terror against independent-minded business leaders. One result has been ever-increasing capital flight, despite heavy-handed capital controls. China’s richest people have also left the country in increasing numbers during Xi’s tenure — a good indication of where they think their opportunities do and do not lie.

Fourth, don’t take domestic tranquillity as a given.

Xi’s government’s recent decision to suppress data on youth unemployment — just north of 21 percent in June, double what it was four years ago — is part of a pattern of crude obfuscation that mainly diminishes investor confidence. But the struggles of the young are almost always a potent source of upheaval, as they were in 1989 on the eve of the Tiananmen Square protests. Never mind Thucydides’ trap; the real China story may lie in a version of what’s sometimes called Tocqueville’s paradox: the idea that revolutions happen when rising expectations are frustrated by abruptly worsening social and economic conditions.

Fifth, don’t suppose that a declining power is a less dangerous one.

In many ways, it’s more dangerous. Rising powers can afford to bide their time, but declining ones will be tempted to take their chances. President Biden was off the cuff but on the mark this month when he said of China’s leaders that “when bad folks have problems, they do bad things.” In other words, as China’s economic fortunes sink, the risks to Taiwan grow.

Sixth, do stick to four red lines.

American policymakers need to be unbending and uncowed when it comes to our core interests in our relationship: freedom of navigation, particularly in the South China Sea; the security of Taiwan and other Indo-Pacific allies; the protection of U.S. intellectual property and national security; and the safety of U.S. citizens (both in China and in the United States) and residents of Chinese ancestry. Helping Ukraine defeat Russia is also a part of an overall China strategy, in that it sends a signal of Western political resolve and military capability that will make Beijing think twice about a military adventure across the Taiwan Strait.

Seventh, do pursue a policy of détente.

We should not seek a new cold war with China. We cannot afford a hot one. The best response to China’s economic woes is American economic magnanimity. That could start with the removal of the Trump administration tariffs that have done as much to hurt American companies and consumers as they have the Chinese.

Whether that will change the fundamental pattern of Beijing’s bad behavior is far from certain. But as China slides toward crisis, it behooves us to try.