Who Really Holds the Upper Hand in the US–China Trade War?

Whether Trump blinked in the face of the bond market, or whether it was his plan all along to pull back his tariffs on the rest of the world, we might never know. But one thing is clear: U.S. tariffs against China now stand at an unbelievable 145%.

Trump insists China desperately wants a deal, but Xi Jinping has shown no sign he’s ready to blink.

Donald Trump and many of his MAGA faithful still seem to believe the U.S. holds all the cards because “we buy more from them than they buy from us.” On the surface, it seems simple: if the United States is China’s biggest customer, cutting off that demand will force Beijing to capitulate.

However, it’s worth taking a closer look at who’s actually making the stuff. China’s ability to mass-produce crucial goods and components from clothes, smartphones, computers, to antibiotics is, in the short term, irreplaceable. While American consumption is the engine that drives the world economy, China is providing the gas.

The fundamental problem for America is that money is fungible, but physical goods aren’t.

If you’re Beijing, missing a few billion in revenue from U.S. customers certainly stings, but you can reorient exports to India, Southeast Asia, or Europe. Or you can refocus on your vast domestic market, something China’s leadership has been pushing through its “dual circulation” policy. Meanwhile, if you’re Washington, you can’t just conjure up factories overnight to churn out advanced microchips or crucial pharmaceuticals. Once tariffs or export bans disrupt supply chains, it’s American companies and consumers who scramble to find alternatives — often at higher costs and with lengthy delays.

Guns, Germs, and Steel

Let’s look at a simple example: antibiotics. A huge portion of U.S. antibiotic supplies and precursor chemicals come from China. The benefit to the United States far exceeds the relatively cheap cost of the pills themselves, as they serve a massive public good — health. If Beijing decided to severely restrict these medical exports, it would be a crisis for the U.S.

The same logic applies to electronics. Most smartphones, PCs, and consumer devices that Americans use every day are assembled in China or rely on Chinese parts. While there is talk of shifting production to Vietnam or India, but scaling those nations’ manufacturing capacity to rival China’s will not be easy. Reshoring or relocation of complex supply chains costs billions and takes years — time and money that many companies don’t have. It might not even be practically possible to move this production to other countries. There is an enormous human capital element — the skill of the Chinese labor force — and an ecosystem of manufacturing companies that might be for all intents and purposes irreplaceable.

Washington has tried to choke off China’s tech rise with broad export controls on advanced semiconductors, and that does hurt Beijing’s ambitions. But China can play this card too by restricting components components — especially cheaper ones widely used in consumer goods — thereby crippling American industries if they lack ready alternatives. The White House can’t easily sabotage China’s electronics supply without American businesses and consumers taking it on the chin.

Ironically, Americans have long benefited from China’s unfair trade practices — such as currency manipulation and forced labor — to buy these essential products at artificially low prices. This consumer advantage is also balances the relationship in favor of China.

Who Really Holds the Leverage?

In a world where China manufactures much of what people need — from everyday electronics to medicines — the buyer (the U.S.) doesn’t automatically hold all the power. America is a big market with a lot of money. But that advantage only goes so far when your own economy relies critically on the same products you’re taxing or blocking.

China is not immune to economic pain. The trade war has softened its export machine, dented growth, and reduced living standards for Chinese citizens. Yet Beijing’s centralized control and willingness to subsidize key industries mean it can outlast political pressures that typically constrain Washington.

Both nations will suffer from this high-stakes standoff. Still, the U.S. view is hopelessly optimistic when you consider the enormous infrastructure and time needed to replace Chinese supply. Tariffs and export bans could just ricochet back on American businesses and households in the form of shortages and higher prices.

Leverage in a globalized economy isn’t about who simply signs the checks; it’s about who owns the capacity to produce, and how quickly each side can pivot. And for now, China’s enormous manufacturing base remains a pivotal source for countless items Americans rely on. Politicians can talk tough about cutting off imports, but actually doing so is a messy process. Beijing knows this.

So, who really has more leverage? That remains to be seen, but it’s easier to find a new buyer for your product than to build a new factory for your buyer.