Why China Can’t Win a Big Trade War with the United States

While China is often portrayed as an economic superpower, it lacks the structural resilience, economic flexibility, and strategic leverage to sustain a prolonged or heavy trade war with the United States. One of the core weaknesses lies in China’s heavy reliance on exports, particularly to major markets like the U.S. and the European Union. A large portion of China’s economic growth is driven by manufacturing and trade, which makes it highly vulnerable to disruptions in global demand. The United States, with its more diverse economy and strong domestic consumer market, can more easily absorb economic shocks and redirect supply chains to alternative countries such as Vietnam, India, or Mexico. In contrast, China cannot quickly replace lost American demand through its domestic market, as its consumer base, while large in number, does not yet possess the same level of disposable income or spending power.

Compounding this issue is China’s significant real estate crisis, which has become a major drag on its economy. Years of overbuilding, speculative investment, and excessive borrowing by property developers have led to an oversupply of housing and stalled construction projects, most notably with major firms like Evergrande defaulting on massive debts. This sector, which once accounted for up to 30% of China’s GDP, is now struggling, leading to decreased consumer confidence, financial instability, and reduced local government revenue. The real estate collapse not only undermines domestic economic activity but also limits the government’s ability to stimulate the economy during external shocks like a trade war.

Additionally, China’s infrastructure, though extensive, often suffers from overcapacity and inefficiencies, with many projects built through state-driven debt rather than market demand. Financially, China remains dependent on access to Western technology and financial systems, including U.S. semiconductors and dollar-based transactions. The U.S. can, and has used sanctions and export controls as powerful tools to limit China’s access to critical technology, as seen in the restrictions placed on Huawei and semiconductor exports. Furthermore, China has fewer economic “cards” to play in a trade conflict. It imports less from the U.S. than it exports, giving it a smaller pool of goods to target with retaliatory tariffs. Attempts to retaliate by threatening rare earth exports or targeting American companies in China risk scaring off much-needed foreign investment.

Lastly, China’s capital controls and fragile currency position add to its limitations. The yuan is not fully convertible, and in times of economic stress, the Chinese government must use its foreign reserves to stabilize it. This creates additional strain in a prolonged trade conflict. Altogether, these factors—reliance on exports, an underdeveloped consumer market, a collapsing real estate sector, financial dependencies, and limited retaliatory options—demonstrate why China is not structurally prepared to wage a sustained, high-stakes trade war with the United States.

General informational content only. Not tax, legal, or investment advice. Consult a financial professional before making investment decisions. Conduct due diligence. All investments involve risk, including potential loss of principal.