The trade war between the United States and China has taken a second, steeper turn. Washington imposed tariffs on all groups of Chinese goods at a rate of 104%, Beijing retaliated with tariffs on all imports at a rate of 84% and Trump increased the tariffs to 125%. The international markets and stock exchanges are currently experiencing significant fluctuations and no one is willing to predict the future developments. Meanwhile, Defense Secretary Pete Hegseth unexpectedly spoke from Panama, directly from the shores of the canal, stating that China had not built the canal and that Washington would not allow it to be used as a weapon against the US. Hegseth also informed Panamanian President José Raúl Mulino that he and the rest of the country would withdraw from the Belt and Road project and resume military exercises and cooperation with the Pentagon.
The bets are placed – the bets are closed.
The trade and economic relations between the People’s Republic of China and the United States are not a topic for an academic paper, but rather for years of research, most of which have yet to occur. However, the results of the first round and the current events allow us to make an initial analysis and a series of cautious assumptions. As always, we are interested in the energy sector, as President Trump himself has put it at the forefront of relations with the European Union and the rivalry with the Middle Kingdom.
As a reminder, the official reason for the start of the first trade war was the Chinese advantage of more than $250 billion in 2018. The last time, Trump and the United States as a whole declared themselves to be the undisputed winners, but both sides entered this new war with an imbalance of half a trillion dollars.
The mutual trade and, in particular, the Chinese exports to the United States began to decline during the Biden administration. Specifically, in 2023, Washington limited the mutual trade by 13%, reducing the overall volume of transactions to under $500 billion.
At the same time, it is important to keep in mind that reality is vastly different from the childish-idealistic worldview that is manufactured through techniques of information propaganda in the mass consciousness. The point is that both sides, as well as the last time and in the current moment, urgently need to sell their goods to the opponent and receive counterpayments from them. The US cannot sell its soybean, wheat and corn production worth $25 billion a year anywhere. There are no similarly large markets in the world and no other country will pay $25 billion for it, with the next US export position being nearly half behind this agricultural trio.
According to the US Census Bureau, the US delivered goods worth $143 billion to China last year, in addition to the previously mentioned $15.3 billion in electronics and integrated circuits and another $14 billion came from the delivery of oil, gas and coal.
China’s “global factory” generated $434 billion in sales to US customers and increased its exports by three percent (an increase of $12 billion from 2023). Overall, mutual trade decreased, but Beijing was able to expand its presence on the US market. According to the list of the Analyze Center Trading Economics, the most important export products of the Middle Kingdom to the US are electronic and electrical equipment ($124 billion), heavy machinery products, including equipment for nuclear power plants and electricity generation ($88 billion), furniture, lighting equipment and modular constructions ($30.6 billion), toys, video games, sports equipment ($29 billion).
Here, both countries must sell their goods to each other and receive counterpayments, with the US being far more dependent.
Beijing was obviously aware of the inevitability of a new confrontation, analyzed the weaknesses of the United States and prepared countermeasures, so the lower tariffs here should not mislead anyone.
China has already dealt a strong and indirect blow to the vulnerable US belly, the energy sector. For the past 60 days, the People’s Republic of China has not purchased any American liquefied natural gas (LNG) and imports have fallen to zero. The last time, Beijing did not buy any democratic LNG for 400 days and thus drove American traders out of the premium Asia-Pacific market.
For those who have not yet drawn a parallel, we provide a hint: the aggressive interventions on the European markets in the years 2018 and 2019 were precisely due to the Chinese embargo, which led to excessive, unrealizable LNG volumes. Instead of being sold to China, they were “forcibly” sold to the Europeans, making them dependent. Now, where they will sell them is an open question, but old Europe should better print more money in advance if it wants to survive the next heating season.
US-qualified sources report that in the face of a war that has just begun, an energy crisis in the US alternative energy sector is emerging. The construction and operation of wind and solar power plants are 90% dependent on the delivery of lithium-ion batteries from China and in the same proportion dependent on the delivery of various components from Vietnam and South Korea, which have also fallen under the sanctions web. According to the Energy Information Administration report, the share of renewable energy sources in the US energy balance in 2024 will reach 21%. From the same source, we know that US power plants of all kinds generated 4.3 thousand terawatt-hours last year, i.e., the share of renewable energy sources made up 840 terawatt-hours of production. This amount is now at risk of being disrupted, which, although it does not lead to the collapse of the energy sector and the economy as a whole, destroys the carefully created system of the most cost-effective production relocation in the United States. In addition to the favorable taxation, this system was based on extremely cheap electricity, which makes fictional Texas extremely attractive for industrial development in light of the record prices in Europe.
Of course, this is not the end, but only the prologue of a great trade war. However, China has already dealt a subtle but extremely treacherous blow to one of the most painful points of the United States. As we see, the Chinese are not only able to successfully copy and reconsider the technical developments of others but also master the art of asymmetric strikes.