The U.S.-China Trade War:
Misperception, Muscle, and the Mistakes That Could Break the World Economy
As U.S. and Chinese officials prepare to meet in Geneva, Switzerland, this weekend, the stakes are high, but the real danger isn’t just about tariffs or trade balances. It is about the kind of strategic misperception that turns economic skirmishes into full-blown geopolitical conflicts. Both sides believe they understand the other’s motivations, but as any student of game theory knows, confidence without clarity is dangerous.
1. The United States: Chaos as Strategy, or Just Strategy as Chaos?
Washington’s approach to the trade war has been as subtle as a sledgehammer. The Trump administration’s recent executive order on reciprocal tariffs is a blunt declaration that the era of predictable, rules-based trade is over. In its place is a strategy of calculated chaos, where tariffs are raised, allies are antagonized, and uncertainty becomes a weapon. It’s the trade equivalent of kicking over the chessboard, hoping the other player panics.
Treasury Secretary Bessant recently acknowledged that tariffs set at 145% on Chinese imports, with Chinese retaliation of 125% on US goods, effectively create a de facto trade embargo, a stark escalation that risks shutting down entire sectors of cross-border trade. This is not a tactical maneuver; it is economic warfare, with all the unpredictability and collateral damage that implies.
This isn’t without precedent. The Trump administration seems to be channeling a particularly American form of game theory that relies on unpredictability's strategic value. The goal is to destabilize the opponent into making concessions, forcing them into a reactive stance. It’s a tactic drawn straight from the playbook of disruptive business founders and battlefield commanders—control the tempo, keep your adversary guessing, and never, ever let them see the endgame.
But here’s the problem: Chaos is only an advantage if you can control it. If the U.S. misjudges China’s willingness to endure short-term pain for long-term gain, it risks sparking a conflict that spirals out of control. After all, the U.S. economy itself isn’t exactly immune to self-inflicted wounds. The first U.S.-China trade war, which began in 2018, left both sides economically bruised, with both countries facing reduced growth, disrupted supply chains, and alienated trading partners. The stalemate ultimately cost the U.S. billions in lost exports and triggered significant price increases for American consumers—a reminder that trade wars rarely have clear winners.
2. China: Playing the Long Game or Just Playing for Time?
China’s decision to come to the table this weekend isn’t a white flag—it’s a strategic pause. Beijing is betting it can ride out the current storm, using its centralized economic controls to absorb the initial shock of U.S. tariffs while leveraging its influence over global supply chains to hit back at American exporters when it suits them.
China’s leaders have a habit of thinking in centuries, not electoral cycles. They’ve watched as the U.S. ties itself in knots over domestic politics and shrinking industrial bases, and they are unlikely to see this trade war as anything other than a temporary inconvenience. By agreeing to talks now, Beijing can appear conciliatory while quietly working to reduce its reliance on U.S. markets—a classic “play for time” strategy straight from Sun Tzu’s Art of War.
But China isn’t invincible. Its economy is more fragile than it appears, burdened by massive debt, demographic decline, and a slowing growth rate that threatens the Communist Party's very legitimacy. The recent rollout of domestic economic stimulus is a sign that even the mighty Chinese state can be rattled by American pressure. This summit isn’t just about trade; it’s about buying time to prepare for a longer, potentially more dangerous conflict.
3. The Real Danger: Misreading the Game, Misplaying the Hand
The most significant risk here isn’t just that both sides are playing hardball: it is that they’re playing different games entirely. For Washington, the trade war is about economic sovereignty, reducing supply chain vulnerability, and rebuilding American manufacturing. For Beijing, it’s about buying time, consolidating global influence and geopolitical advantage, and avoiding domestic instability.
The danger is that each side assumes it understands the other’s motivations when, in fact, they are operating on entirely different strategic timelines. This kind of misunderstanding leads to escalation spirals, where each side reacts to the other’s moves without ever truly understanding their deeper intentions. It’s the geopolitical equivalent of a slow-motion car crash, where both drivers refuse to swerve because they assume the other will blink first.
4. The Path Forward: Learning from the Past, Avoiding the Next Stalemate
Despite the risks, this weekend’s summit in Switzerland presents a rare opportunity for both sides to recalibrate. If the first U.S.-China trade war taught us anything, both sides can lose. The 2018-2020 conflict left both economies scarred, with supply chains disrupted, inflation rising, and trust shattered. The stakes are even higher this time, with the global economy already teetering on the edge of a broader slowdown.
However, there are positive steps that could emerge from this meeting if both sides are willing to take them:
Tariff De-escalation: A gradual rollback of the most extreme tariffs, like the 145% and 125% duties, could provide immediate economic relief and stabilize global markets.
Supply Chain Resilience: Both sides could agree to diversify and strengthen their supply chains, reducing mutual vulnerability to economic shocks.
Technology Cooperation: While this remains unlikely, even small steps toward technology sharing or standards alignment could reduce the risk of a broader tech war.
Financial Stability Pacts: Given the rising pressure on both economies, a financial stability framework that reduces currency volatility could help both sides weather the coming economic storms.
5. Choose Your Next Move Carefully – The World is Watching
As the U.S. and China sit down in Switzerland, the real question isn’t just about tariffs and trade balances, but about whether they can escape the trap of mutual misperception. For Washington, this means recognizing that chaos, while powerful, can be a double-edged sword. For Beijing, it means accepting that tactical patience can be mistaken for weakness, inviting aggressive escalation.
The Swiss summit isn’t just a negotiation—it’s a high-stakes test of whether the world’s two largest economies can avoid a conflict that neither can afford to lose. If they fail, the consequences won’t be measured in GDP points or trade balances, but in a shattered global order and a long, cold trade war that leaves everyone poorer.
So, here’s some unsolicited advice for the diplomats in Geneva this weekend: Don’t mistake muscle for strength, or patience for passivity. The stakes are too high, and the costs of miscalculation are too significant. Choose your next move carefully. The world is watching.
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— Prof. Barry Appleton
Distinguished Senior Fellow, co-director of the Center for International Law, Professor of Law, New York Law School | Managing Partner, Appleton & Associates LP/ Fellow, Balsillie School of International Affairs | Trade & Innovation Nomad