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In our May article “Playing Hardball in Trump’s Trade War”, we discussed that China’s tough stance in the U.S.-China trade war was not due to Beijing having a strategic advantage or the resilience of China’s domestic economy, but rather an inevitable choice rooted in Beijing’s own political and economic logic. The article also pointed out that, although the trade war could have a greater impact on China’s economy and ordinary Chinese citizens, political pressure in the U.S. might emerge earlier, thereby influencing policy decisions more quickly and extensively. At the same time, the chance of China and the U.S. reaching a sustainable, substantive trade agreement is slim. This is because the underlying issues behind the U.S.-China trade contest are deeply intertwined with Beijing’s long-standing governance model and legitimacy foundation, and making changes in these areas is almost unacceptable for Beijing. Six months later, the U.S.-China trade war continues, and a popular question is whether Beijing has already won or is winning this trade war.
In this article, we will examine the mainstream perspectives on analyzing the trade war and attempt to provide an alternative interpretation. Through this interpretation, we argue that the risks and problems faced by China and the U.S. are not the same, and that the situation is not one of win-lose, but rather lose-lose. We believe both sides must first address their own issues in order to break the lose-lose situation.
America is losing vs China is winning
A currently popular view holds that the United States is losing this trade war, while China is winning. The “America is losing” perspective focuses on the economic pressures, political vulnerabilities, and declining leverage of the U.S. in global trade. It emphasizes the impact of tariffs and retaliatory measures on American industries and consumers—for example, US tariffs on Chinese imports have increased costs for American businesses, particularly manufacturers dependent on intermediate goods, which in turn raises consumer prices and dampens domestic consumption. The agricultural sector is portrayed as the hardest hit, with American farmers losing access to key export markets due to China’s retaliatory tariffs, resulting in crop surpluses and financial distress. This perspective also highlights broader supply chain disruptions: businesses face uncertainty about sourcing materials, undermining production efficiency and global competitiveness. Politically, it points to domestic dissatisfaction, with affected industries and regions pressuring legislators, fueling partisan tensions, and intensifying public criticism of trade policy. Strategically, it argues that as allies and global partners reorient their trade flows in response to tariffs, the US’s negotiating leverage is weakened, reducing its ability to shape global economic rules. Overall, this view portrays the US as enduring economic pain, structural disruption, and reputational costs in the trade war while struggling to achieve its objectives.
In contrast, the “China is winning” perspective presents a narrative of China’s success in the trade war as centered on resilience, strategic composure, and the ability to leverage its centralized political system to withstand external pressures. It emphasizes China’s rapid mobilization of financial, industrial, and human resources, enabling coordinated responses such as targeted retaliatory tariffs on U.S. goods, restrictions on exports of strategic materials, and large-scale domestic stimulus programs. This perspective depicts China as protecting its strategic industries and key supply chains while maintaining employment stability and containing potential social unrest. It highlights tactical gains, such as securing selective concessions in bilateral negotiations, safeguarding domestic manufacturing and technological development, and projecting an image of disciplined national unity. Additionally, this narrative underscores China’s ability to project international power, maintaining its role as a critical global supplier in high-tech sectors such as electric vehicles, solar panels, and telecommunications equipment. Even amid volatile short-term economic data, the narrative portrays China as strategically adapting, turning short-term challenges into opportunities for long-term domestic industrial upgrading and geopolitical leverage.
Issues with the ‘China is winning’ narrative
Thanks to its competitive political system and open information environment, the “America is losing” perspective is supported by substantial data and empirical observation. However, “America is losing” does not mean “China is winning.”
China’s image in the U.S.-China trade war is often portrayed as calm, disciplined, and strategically stable. Yet this narrative, based solely on superficial observation, is fundamentally flawed, because the underlying cause lies in the stark differences between China’s political system and Western systems. Under China’s authoritarian system, decision-making power is concentrated in the core leadership, leaving little room for open political challenges. Policy formulation and resource allocation are largely insulated from competing opinions, allowing any national strategy to be rapidly enacted and extensively resourced. This institutional structure is often misinterpreted by external observers as “speed” and “efficiency” characteristic of a competitive system. The essential difference, however, is whether the process undergoes broad and fully rational deliberation.
Moreover, China’s strict control over information and society masks the true internal economic conditions and social impacts, making it difficult for outsiders to assess the actual effects of the trade war. Key indicators such as export declines, reduced profits, and unemployment are often suppressed by official propaganda or media control, while the real hardships faced by ordinary citizens are rarely reported.
More profoundly, the trade war has triggered structural and long-term shocks through the reorganization of global supply chains. Since 2018, multinational manufacturers, aiming to avoid tariffs and geopolitical risks, have gradually moved production from China to countries like Vietnam, India, and Mexico. This supply chain relocation has weakened China’s position as a global manufacturing hub, leading to investment and job outflows in manufacturing and undermining the industrial cluster effects in coastal regions. Although China still occupies key nodes in global supply chains, its value-added ratio has declined, profit margins have shrunk, and local fiscal revenues have fallen. This “de-Chinafication” trend not only reduces China’s bargaining power in global production networks but also exposes the vulnerability of its export-dependent economic structure.
China’s policy responses to the trade war have also been deliberately simplified. For example, restrictions on rare earth exports have short-term deterrent effects but undermine international trust and accelerate supply chain diversification and corporate decoupling. To offset declining exports to Western markets, China has expanded into Southeast Asian and “Global South” markets. Although overall exports have partially recovered, these alternative markets have lower purchasing power and highly homogenized product structures, leaving trade value gaps difficult to close. This “volume for value” strategy is especially evident in industries like electric vehicles, photovoltaics, and batteries, further eroding the real economic returns of Chinese exports.
Domestically, China relies heavily on local governments and state-owned enterprises (SOEs) to buffer the effects of the trade war and the COVID-19 pandemic. These entities employ implicit debt instruments, such as local government financing vehicles (LGFVs), to fund infrastructure projects and subsidies, all aimed at maintaining stability and alleviating employment pressures. While this generates short-term “growth,” it exacerbates local debt default risks, damaging already fragile fiscal conditions, and severely limits the capacity to respond to future external shocks.
At the household level, despite substantial state investment, consumption rates have failed to improve. Meanwhile, Chinese policy has consistently focused on the supply side—particularly promoting high-tech industrial upgrades—rather than boosting domestic consumption. This misalignment worsens resource misallocation, deepens subsidy dependency across industries, and further intensifies structural imbalances. This long-term mismatch between supply and demand is a primary driver of deflationary pressures.
In technology and innovation, China has pursued an aggressive self-reliance strategy through massive state subsidies and strategic investments but has not resolved structural weaknesses within its tech sector. While China has created “national champions” in semiconductors, AI, and advanced manufacturing, it remains heavily dependent on foreign imports for key technologies—for example, advanced semiconductor equipment from Dutch company ASML and chip design tools from US firms like Cadence and Synopsys. Even the much-vaunted C919 aircraft relies almost entirely on imported key components.
Meanwhile, government prioritization of SOEs and strategic industries over private and small enterprises has contributed to stagnation in the private sector, historically a key engine of innovation and job creation. In 2023, the private sector’s share of fixed-asset investment fell to a 20-year low. At the same time, youth unemployment has remained persistently high, generating a pervasive sense of insecurity and exacerbating broader “involution” societal issues.
Politically, Beijing has leveraged the trade war to consolidate power, strengthen social control, and mobilize nationalist sentiment. While this has bolstered short-term political cohesion within the Chinese Communist Party (CCP), underlying social dissatisfaction is rising. Censorship and surveillance measures have intensified, particularly in response to growing youth unemployment and social unrest. Ordinary citizens are increasingly experiencing economic stagnation and declining living standards. In recent years, protests and public incidents have significantly increased, including rare protests directly challenging the regime’s legitimacy. Signs suggest Chinese society may be entering a new period of rising political protests.
In summary, while China superficially maintains stability, the underlying reality reflects severe structural deterioration. The state creates short-term resilience through credit and subsidies, but at the cost of stifling innovation, suppressing consumption, and amplifying debt. Beijing’s “victory” is therefore largely a temporary political one—a surface-level success achieved through centralization and redistribution that masks structural weakness. Using its unique political system, Beijing meets immediate political needs at the expense of long-term systemic resources and capabilities. Beneath the appearance of success lies a deterioration of structural stability and escalating internal tensions. Thus, China is not winning the trade war.
Beijing’s choices and Washington’s uncertainty
In future developments, China can either continue this illusory victory or address its internal and external contradictions through substantive structural reforms. For example, it could reduce the monopolistic control of state-owned enterprises and dominant capital over key social resources and industries, expand and strengthen the social security system, improve income distribution, establish a fairer legal framework, and increase public participation in policy-making and oversight. However, the key issue is that such reforms would inevitably lead to the decentralization of economic and political power, which would directly conflict with Beijing’s political ambitions. A more likely scenario, therefore, is that Beijing will further consolidate highly centralized power, expand government-directed support for specific industries, and simultaneously intensify social control to manage worsening internal economic problems and social discontent.
In contrast, the United States still possesses global strategic advantages, but the ability to leverage these advantages is clouded by domestic political and economic challenges. In other words, Washington’s problem is not a lack of power or means, but rather that its unilateral actions and confrontational behavior undermine its own advantages and interests.
In summary, within a deeply interconnected global economic system, whether China or the United States, breaking out of this lose–lose situation requires addressing internal problems first.
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