Trade turmoil: How Trump, Xi reshaping global economy

In a world where global trade is rapidly shifting, two towering figures—US President Donald Trump and Chinese President Xi Jinping—are steering the ship in opposite directions, creating an unpredictable economic storm. 

The New York Times describes in a new article that while Trump’s aggressive tariff policies threaten to disrupt the delicate balance of international commerce, Xi’s strategic grip on China’s manufacturing power is reshaping the global landscape. 

President Trump's use of aggressive tariffs poses a significant threat to the postwar economic and political landscape, injecting uncertainty into global trade and making it challenging for trade partners to respond—let alone for businesses to make strategic plans. However, he may not be the greatest threat to the global economy. That distinction could go to President Xi Jinping of China, whose methodical and calculated industrial policies are having a disruptive and detrimental effect on global trade.

While trade traditionally involves the exchange of imports and exports, Xi has dramatically altered China’s trading practices, particularly with respect to manufactured goods. Over the past six years, China’s imports of these goods have grown by a mere $15 billion annually, a negligible change when adjusted for inflation. In stark contrast, its exports of manufactured goods have surged at a pace more than 10 times greater, expanding by over $150 billion annually. This means that trade with China, particularly in manufactured goods, has become overwhelmingly one-sided.

China has emerged as the dominant force in global manufacturing, with its trade surplus outstripping that of Germany and Japan during their postwar export boom periods. While countries worldwide benefit from low-cost Chinese goods, they struggle to sell their own products in return. This imbalance is harming their export sectors—Germany is a prime example—and stifling job growth in those industries.

The roots of the current economic challenges can be traced back to the global financial crisis of 2008, which caused a sharp decline in Chinese exports. Rather than taking steps to boost household incomes and support domestic consumption—potentially steering China toward a more sustainable economic model—Chinese leaders chose to funnel vast household savings into a massive investment boom. This led to the construction of bridges, roads, and, notably, apartments, shifting some of China’s growth dependency away from exports. However, this also created a real estate bubble, which triggered a persistent slump when Xi Jinping cracked down on the housing sector in 2020.

Xi’s response to the Covid pandemic further exacerbated the situation. While advanced economies globally injected government funds to support consumer spending, China resisted such measures, adhering to an ideology that consumer stimulus doesn’t generate lasting value. Instead, China relied on global stimulus packages, especially from the US, and invested heavily in its manufacturing sector to replace the growth that had been lost due to the housing market collapse.

Essentially, Xi’s strategy has made China’s trade partners shoulder the consequences of the government’s missteps in both real estate and the failure to strengthen domestic household spending. While China does import some commodities and advanced technology, its manufacturing dominance is undeniable. The country has rapidly expanded its automotive production capacity, and now leads in steel, aluminum, and shipbuilding. Its dominance in clean tech, such as solar cells and batteries, continues to grow, and there are concerns it could extend this success to sectors like semiconductors. China has managed to mitigate the decline in domestic steel demand by investing in new factories producing for export.

Overall, China’s export volume is growing three times faster than global trade, directly hurting manufacturers in other countries. As China’s real estate market remains sluggish, this pattern shows little sign of change. The result is a world economy in which China no longer needs industrial inputs from other countries, while leaving those countries reliant on Chinese-made goods, vulnerable to Beijing’s political and economic pressures.

President Trump’s tariffs exacerbate these issues. While tariffs themselves may not dramatically alter global trade if they are confined to specific measures, Trump's unpredictability makes it hard for businesses to plan. If the US were to withdraw from world trade, no other country could reasonably absorb all of China’s exports, leaving China with no outlet for its goods. Without significant changes to its economy, which Xi is unlikely to embrace, China could be in a precarious position.

Between Xi’s one-way vision of trade and Trump’s skepticism toward trade altogether, the global economy faces a rough future.

By Naila Huseynova