‘You Think We’re Afraid of America?’

The sewing machines had been switched off at Kang Yang Apparel, a women’s-clothing manufacturer in the southeastern-Chinese city of Yiwu, so it was easy to hear the word ricocheting across the factory floor: Chuanpu, a Mandarin nickname for Trump. When I visited, the United States had just raised tariffs on Chinese goods to 145 percent. The workers at Kang Yang did not seem intimidated. When I approached a group of idle factory men, their replies were bellicose: “Hold strong!” one shouted. “You think we’re afraid of America?” barked another. Later, one man offered a steadier assessment: “The truth is, it will have an impact, but we will be fine.”

Yiwu is the world’s largest wholesale market. Products as varied as padlocks, luggage tags, and inflatable pools each get a dedicated Costco-size zone. Roughly half a trillion dollars’ worth of Chinese goods, or 15 percent of China’s total annual exports, are imperiled by the trade war, but Chinese President Xi Jinping has shown no signs of backing down. Beijing has retaliated with 125 percent tariffs on U.S. imports, endangering more than $140 billion worth of goods a year. Unlike Donald Trump, Xi is not beholden to elections. He has styled himself as a leader who can endure short-term pain and has said that he expects his citizens to “eat bitterness”—the Chinese equivalent of “tough it out.” Based on the spirited pronouncements of Yiwu sellers, those on the front lines of this international game of chicken are very much prepared to do so.

Trump’s whirlwind policies have already throttled Yiwu’s supply chains. Purchase orders have dried up, and shipments have been postponed. On average, the merchants I spoke with have somewhere from 10 to 20 percent of their business tied up with the United States. Yet even as their future prospects looked bleak, there was little appetite for détente.

[Derek Thompson: A trade war with China is a very bad idea]

For more than 20 years, Yang Langhua has operated a factory that makes Christmas-themed plush toys. Around Trump’s “Liberation Day” announcement, a longtime customer in the United States, where Yang conducts 20 percent of her business, asked Yang if she could lower her prices by 10 percent. The customer had ordered $3,000 worth of goods in February, and Yang was ready to ship it. “I said, ‘I can’t accept that,’” Yang told me. “I only make 10 percent profit total—if I cut it, I’d have no profit at all.”

“I say the whole world should unite and stop doing business with the United States,” Yang went on. “Let them fend for themselves.” Her son-in-law is earning a Ph.D. in computer science in America. Now she hopes he returns home. “We’re already the second-biggest power,” she said. “And in many technology areas, we’ve caught up.”

In some ways, Trump’s tariffs might already be helping China. Many Chinese businesses are applying lessons learned from the previous trade war. (Toward the end of Trump’s first term, American tariffs on Chinese goods reached about 20 percent, on average.) David Xu works for an auto-parts company based in Shanghai that used to export mainly to the Los Angeles area. Over the past three years, he told me, he’s dropped his U.S. exports by 40 percent and replaced them with a roster of Latin American clients. “China isn’t afraid of tariffs anymore,” Xu said. His fellow exporters have “gone global,” doing business in the Middle East, South America, and Eastern Europe. China was once the factory of the world. Gradually, it has become the factory of the developing world.

Xu’s company was inoculated from Trump’s tariffs for another reason: It had offshored manufacturing to Mexico in 2020 in response to the coronavirus pandemic. Many Yiwu sellers described similar work-arounds. One manufacturer of stationery items told me that she has moved production to Vietnam. Others have gone to Cambodia or Japan. Yang, for her part, has rerouted some of her Christmas supplies through Mexico, where her customers were recently investigated by Mexican authorities. The Trump administration has leaned on countries such as Mexico and Vietnam to curb the rerouting of shipments, but such efforts resemble a game of whack-a-mole.

The broad message I heard in Yiwu was this: Trump had overestimated America’s leverage. At the end of this standoff, China, not America, would come out stronger: more self-reliant at home and more respected abroad.

Trump’s tariffs present China with the long-anticipated opportunity to pivot its economic engine from exports to consumption. For more than a decade, Beijing has postponed the transition from a fast-growing export-based economy to a developed, consumption-based one. It has suppressed wages, devalued its currency, and driven its stimulus plans to infrastructure projects and high-tech manufacturing. Chinese exports have ballooned as a result, escalating tensions with trading countries who wish to on-shore manufacturing. The trade war “might have given China the urgency to rebalance its economy,” Cui Zhiyuan, a political economist at Tsinghua University, in Beijing, and a longtime proponent of a robust stimulus plan to boost consumption, told me.

[Rogé Karma: The tariff damage that can’t be undone]

In the abstract, a Chinese rebalancing should be welcome to the Trump administration. One irony of Trump’s tariff crusade is that it might get China to make the types of reforms that American trade hawks have long sought, but on terms that are suddenly more favorable to Beijing—and less favorable to the United States. In light of Trump’s haphazard and destructive tariffs, countries in Europe may see a consumption-oriented China as a more attractive trading partner. A balanced economy means balanced trade: Chinese consumers buying European goods, and European consumers buying Chinese goods. The future choice for America’s allies is whether they want to trade with an erratic and abusive America or a China that—however imperfect—could improve as a trading partner. The answer is not obvious.

As Cui reminded me, the Chinese word for crisis consists of the characters for danger and opportunity. In this trade war, China’s economic reformists see an opportunity to drive through changes that will rebalance its economy. Its leaders see an opportunity to better position China as a less capricious partner to the Middle East, the global South, and even Europe. While the White House sees the tariff war as a referendum on China’s exploitation of global trade, Chinese officials are making it a referendum on American egotism and hypocrisy. The rest of the world will decide which message is more compelling. Washington thinks it’s isolating Beijing, but it could very well be isolating itself.