Trump misunderstood China’s leverage — and made the U.S. more vulnerable in the process.
June 13, 2025
President Donald Trump’s trade deal with China, announced this week, is vague, to be sure. But it seems to follow the familiar arc of what a Financial Times commentator has cleverly dubbed the “TACO” trade — the market view that “Trump Always Chickens Out” — with one twist.
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The deal amounts mostly to a rollback to the state of affairs before Trump began his trade war, except that Americans will still pay a tariff rate of 55 percent on goods from China (compared with China’s 10 percent tariff on American goods). Trump’s tariffs will cause pain — to America, not China. Economist Dean Baker notes that in light of these tariffs, the World Bank now says that U.S. growth is projected to slow from 2.8 percent last year to 1.4 percent. And yet, China’s growth rate is expected to stay the same as the previous projection. It’s clear who is paying for Trump’s “Liberation Day.”
Beyond the theatrics lies an important lesson. The global economy is now complex and interdependent enough that even the United States, led by a president willing to use any means, faces real limits on its power. Scholars Henry Farrell and Abraham L. Newman have astutely noted that economic interdependence can be weaponized. States can exploit any advantages they have in the world economy and use them to exert coercive pressure. Washington has been the most aggressive user of this strategy, sanctioning countries, adding on secondary sanctions, punishing individuals and cutting nations out of global systems. But we now see the real limits to this power and the cost of overusing it.
In recent decades, U.S. administrations, Democratic and Republican, have weaponized the country’s economic dominance in global finance. And in this realm, U.S. power is unmatched. The dollar is used in nearly 90 percent of all global foreign exchange transactions and accounts for about 57 percent of global foreign exchange reserves. More than 60 percent of the world’s debt is issued in dollars. The SWIFT financial messaging system, though headquartered in Belgium, adheres to U.S. influence on sanctions and, according to a Treasury Department estimate, in 2006 facilitated about $5 trillion in daily transactions. These tools give Washington the ability to punish adversaries such as Iran, Russia and North Korea and isolate them from the global financial system without firing a single shot.
But trade is not like finance. In a messy, multipolar world, countries have many options. When the U.S. restricted ethane exports to China, Beijing substituted by using other fuels. And China has leverage of its own. It is the world’s largest goods exporter, shipping about $3.4 trillion in products in 2023. It produces nearly 30 percent of global manufacturing value-added and dominates supply chains in everything from smartphones to solar panels. More significantly, it’s the global leader in the processing of critical materials. It refines 68 percent of the world’s nickel, 73 percent of cobalt, up to 99.9 percent of heavy rare-earth elements and 59 percent of lithium — materials essential to electric vehicles, wind turbines and semiconductors. When Washington stepped up restrictions on exports of advanced chipmaking technology to China, Beijing responded by banning exports of some rare minerals, vital to almost all American electronics and defense systems. And unlike the way China responded to Trump’s ethane restrictions, the U.S. had little access to quick substitutes.
Trump’s strategy, if there in fact was one, was based on a fundamentally flawed understanding of China. Beijing has been preparing itself for just the kind of pressure Trump imposed on it. The Chinese Communist Party has been making its economy less dependent on imports from America, reaching out to other countries to make deals and steeling its consumers to be willing to take pain so that their nation can stand up to foreign bullying.
Since long before Trump, Washington has used its economic power far too promiscuously. The global sanctions database shows that in the past 20 years, the number of cases of U.S. sanctions in place on foreign countries has skyrocketed, more than quintupling! But Trump has taken this to a new extreme by threatening tariffs and assorted other measures that have nothing to do with trade (such as revoking visas for foreign students). He sounds less like a man representing the world’s leading nation and more like a mafia boss.
In the end, Trump’s trade war was a textbook case of misusing hard power in a domain where the U.S. had no clear advantage, and where coercion was likely to provoke resistance rather than compliance. It disrupted markets, damaged alliances and hastened the search for alternatives to U.S.-dominated systems. And the biggest price of wielding America’s hard power so thuggishly will be to erode American soft power: the faith and trust in America that have made it the world’s agenda-setter and leader, and given it the pivotal position in so many areas, including finance, currency and international politics.
Political scientists Robert O. Keohane and Joseph S. Nye Jr. recently pointed out that Trump is obsessed with hard power. People like him might quote Joseph Stalin’s famous sneering line: “How many divisions does the Pope have?” But as Keohane and Nye note, eight decades after World War II, the country Stalin ruled, the U.S.S.R., is now buried in the sands of history, while the papacy survives and thrives, wielding influence across the globe.
By Fareed ZakariaFareed Zakaria writes a foreign affairs column for The Post. He is also the host of CNN’s Fareed Zakaria GPS.follow on X@FareedZakaria