Quora: Has China been weakened by the trade war as Trump keeps stating?

Pavel Fekula, Active in Russian-American relations Answered 

Trump has temporarily weakened the Chinese economy through his tariffs, but this move is not sensible in the long term. The Chinese economy is highly linked to the US economy, as China is the #1 trade partner with the US. Trade is admittedly relatively one-sided as China exports far more to the US than they import from the US. However, China makes up for this to some extent by making US treasuries the instrument of choice for the nation’s savings, financing the US government and helping to ensure the dollar remains the world’s reserve currency. China is currently neck and neck with Japan for the title of “top holder of US treasuries.”

Sooner or later, this relationship between China and the US is going to break down. When it happens, both nations are going to enter into a severe recession, but China will emerge on top. China will be forced redirect its manufacturing to focus on the domestic market. This will result in temporary pressure on their manufacturing sector as it is forced to retool and adjust to Chinese demands. They will also sooner or later be forced to sell off US treasuries as US deficits continue to rise. This will likely be part of a greater dollar currency crisis, resulting in a loss of China’s investment.

By contrast, the US will be hit with hyperinflation as the dollar declines dramatically in value against the backdrop of a global sell-off. As this happens, Chinese and other foreign goods will become increasingly expensive for American consumers, resulting in goods shortages in the US. As the highly-leveraged economy descends into a crisis, it will ensnare the financial sector, triggering collapse of the banking sector. In the short term, Trump has put some pressure on the Chinese economy, but he is playing chicken with a Mack Truck. In the event that the Sino-American economic relationship breaks down, the US will be the main loser.