As a real estate developer, Donald Trump is deeply familiar with the three keys to success in that industry: location, location and location. Geopolitics, it turns out, also has three keys to success: leverage, leverage and leverage. But it’s not the kind of leverage (i.e., debt) that Trump loved to use in real estate. It’s geopolitical leverage — the power to impose your will on your adversary.
Seen from that point of view, Trump succeeded in bringing about a ceasefire in the Gaza Strip because he gained leverage over both Israel and Hamas — and he used it adroitly. He has failed to bring about a ceasefire in Ukraine, because he has refused to use all the leverage he has on Russia’s Vladimir Putin, who started the war. And Trump’s attempts to employ the leverage of tariffs to reduce China’s manufacturing exports to America — more necessary today than ever — has shown only limited gains largely because of the chaotic way Trump has gone about putting those tariffs into place.
Of course, Trump, with his usual bluster, scored his recent meeting with President Xi Jinping of China as a grand slam — “a 12” on a scale of 0-10, as he put it. In fact, at this summit, all Trump did was dig himself out of a hole with China that he himself dug a few months ago. As The Wall Street Journal noted, markets “yawned” at the deal because it “mostly restores the status quo that prevailed in May.”
So, if you’re keeping score at home, Trump is batting one for three — or .333. In baseball, that can get you into the All-Star Game. In the game of nations, it gets you sent down to the minor leagues.
Right question, wrong answer
Why .333? Let’s focus on China, which is the most important geostrategic, geoeconomic issue for America today.
Any analysis of China has to start with the fact that as a result of the devastating bursting of China’s housing bubble over the last few years, millions of Chinese have lost significant amounts of money and become burdened with debt. Not surprisingly, they are scrimping on spending. I am told that many of the half-empty restaurants I saw in Beijing and Shanghai when I was there last March are even worse off today.
In short, the world’s second-largest economy is having a crash in domestic consumption, so Chinese are also importing even less from abroad. Beijing’s response is not to stimulate domestic consumption — by giving its people something more than the bare minimums in social security and health care — but instead to fund the building of more factories to export goods to the rest of the world.
As one of my Times colleagues covering China, Chris Buckley, reported last week: “Days before meeting President Trump in South Korea, the Chinese leader Xi Jinping laid out the next stage in a strategy of long-term competition with the United States and the West.” The plan “makes clear that Beijing wants to double down” on industrial manufacturing “even as its trading partners worry that China’s expanding exports are undercutting their own industries.”
This is utterly reckless on China’s part. As another of my Times colleagues, Keith Bradsher, reported from Beijing last January, China already “produces about a third of the world’s manufactured goods.” That “is more than the United States, Japan, Germany, South Korea and Britain combined.”
So Trump is responding to a real problem. But as he so often does, he is pushing the wrong answer to the right question. To have real leverage, his tariffs must be part of a quiet grand strategy, but Trump’s fire-ready-aim strategy has been anything but that.
For starters, if you want to move China, you don’t do it in a loud, haphazard way that is only going to embarrass its leaders and get their backs up. You have long secret negotiations.
Second, if you are going to threaten Beijing with economic sanctions, you had better know what it can threaten you with. I can’t confirm this, but I suspect that Trump started announcing his new tariffs on China without ever asking any expert whether China could retaliate in any meaningful way — aside from stopping purchases of American soybeans.
I assume Trump did not ask this, because if he actually knew beforehand that Xi had an economic weapon that could trump Trump’s tariffs tenfold, it would have been the height of foolishness to impose the huge 145% tariff rate on all imports from China that Trump did at one point.
That weapon was China’s control of 69% of the market share for the mining of the 17 chemical elements known as rare earths, 92% of the share for the refining of those elements and 98% of rare-earth-based magnet manufacturing, according to estimates from Goldman Sachs. Rare earths are used in all sorts of technologies, but rare-earth-based magnets are essential for most electric vehicle motors, semiconductors, smartphones, MRI machines, drones, radars, fighter jets, missiles and offshore wind turbines.
Had China gone ahead with its order to curtail rare earth exports in response to Trump’s tariffs, it could have significantly slowed down or shut down manufacturing all across America — and the world.
When Xi laid that card on the table, Trump’s leverage was sharply diminished. He quickly scrambled to have his Treasury secretary persuade China to postpone its curbs on rare earth exports for a year by offering to sharply lower U.S. tariffs and postpone some new bans on high-tech exports to Beijing.
This was the geoeconomic version of Mike Tyson’s famous dictum that everyone has a plan until he gets punched in the mouth.
Purposeful tariffs, incoherent strategy
Finally, I repeat, Trump was right to impose tariffs across the board on Chinese imports in his first term — and also now — because China has not been playing fair on trade.
It is forcing U.S. companies to compete with Chinese factories heavily subsidized by the government, and that are greatly overproducing manufactured goods for export. Tariffs that are limited in time can be useful in buying the economic running room for American manufacturers to develop their own homegrown replacement industries. But for that you need to have a comprehensive strategy — and Trump has none.
At a time when American companies are trying to compete with China’s advanced manufacturing exports, Trump is actually making it harder for U.S. firms to hire high-skilled workers from abroad. He has imposed tariffs that make the materials that go into steel more expensive for our manufacturers; he has slashed the very government-funded research essential for us to compete with China, let alone stay ahead of it; and he has imposed tariffs on virtually all of America’s key allies, whose backing we need to create leverage on China through collective action. It’s a completely incoherent strategy.
Xi’s game is risky, too
All this said, Xi may have leverage today, but he, too, is playing a risky game. By going nuclear on trade — that is, threatening to curtail rare earth exports — Xi has freaked out the rest of the world and stimulated the U.S. and other key economies to begin a crash program to replace these critical Chinese exports. It will take a long time, but the process has begun.
More broadly, the rest of the world is simply not going to let China take all the manufacturing jobs, especially as artificial intelligence starts to cut increasingly into blue-collar and white-collar work. China is courting a real global backlash.
Given how important the U.S.-China relationship has been for sustaining the relative Great Power peace and prosperity of the world since the late 1970s, Washington and Beijing need a quiet long-term dialogue — not a noisy long-term trade war in which both sides lose.
If we really are heading for a divorce in this relationship, oh my goodness, we will miss it when it’s gone.
Thomas Friedman writes a column for the New York Times.
