Last week, President Trump announced a strategic pause on his “reciprocal tariffs” affecting nearly 100 countries, while simultaneously ramping up tariffs on Chinese imports to a staggering 125 percent. This move is a direct response to China’s tit-for-tat retaliation that has persisted since February. Drawing from the lessons of the previous trade war during his first term, the Trump administration has a unique opportunity to secure a decisive and lasting victory in his current trade war with China.
Nearly seven years ago, Trump ignited the trade war by imposing a 25 percent tariff on $34 billion in Chinese goods in July 2018. China immediately hit back by imposing a 25 percent tariff on an equal value in U.S. goods, setting off a continuous cycle of retaliatory measures between the two powers.
The stark reality was that China exported significantly more goods to the United States than it imported (the U.S. trade deficit with China stood at $420 billion as of 2018). Eventually, China ran out of U.S. imports to target with tariffs. By the end of 2018, the two countries began negotiating a truce and reached a trade deal almost a year later.
The 2019 trade deal adopted a misguided phased approach that ultimately fell short of its goals. Phase One addressed easier issues, such as China agreeing to purchase an additional $200 billion in U.S. agricultural products over the next two years. However, the more challenging issues — such as technology transfer and cybersecurity — were reserved for a hypothetical Phase Two negotiation. Unfortunately, the eruption of the Covid pandemic in 2020 and the change in U.S. leadership conveniently allowed China to sidestep its Phase One obligations, and the supposed Phase Two negotiation never took place.
The Trump administration should take away three crucial lessons from that experience. First, future trade deals with China should not utilize a phased approach, as it merely allows time for China to find ways to evade U.S. tariffs. One common tactic employed by Chinese companies has been transshipment — “the practice of moving cargo from one state to another by using a third state as an intermediary in an effort to evade trade restrictions,” according to Miami Law Review.
For example, many Chinese companies have established factories in Mexico since 2018 to take advantage of the U.S.-Mexico-Canada Agreement signed by Trump during his first term. This move has allowed Chinese products to enter the U.S. tariff-free, resulting in the U.S. trade deficit with Mexico ballooning from $78 billion in 2018 to an astonishing $172 billion in 2024. Mexico has overtaken China as the United States’ top trading partner, with bilateral trade soaring to $840 billion last year, as reported by The Wall Street Journal.
It seems that Trump did learn the lesson this time around. He announced a minimum “10 percent tariff on nearly all imports” and higher tariffs on imports from countries like Vietnam and certain goods from Mexico. These measures are designed to close the loopholes exploited by China’s transshipment tactic.
The second vital lesson from the 2019 trade deal is that the Trump administration must not overly fixate on getting China to increase its purchases of U.S. goods while postponing confrontations over major issues like cybersecurity. A compelling mini-podcast series titled “To Catch a Thief: China’s Rise to Cyber Supremacy” exposes China’s deliberate, state-sponsored, decades-long campaign of intellectual property (IP) theft, which one interviewee calls “the greatest transfer of wealth in history.”
Back in 2018, the Trump administration estimated that China’s IP theft cost American companies between $225 billion and $600 billion each year, a figure that nearly matches the U.S. trade deficit with China. As time goes on without action, the cost of these IP thefts will only escalate. When starting trade negotiations with China this time, the Trump administration must prioritize cybersecurity and firmly refuse to agree to any trade deal that lacks concrete and immediate measures from Beijing to address its state-sponsored cyber theft.
The third important lesson from the 2019 U.S.-China trade agreement is that it is not a treaty. President Joe Biden’s four years in office have demonstrated that if a Democrat president succeeds Trump in the future, that individual could easily annul any initiatives Trump has implemented through executive power alone.
Xi Jinping, the Chinese leader, is well aware of this reality. A critical advantage Xi holds over President Trump is that Xi is not subject to elections. This enables Xi to engage in a waiting game, prolonging negotiations and delaying implementations as long as he can, effectively stalling until the end of Trump’s second term.
Given the current circumstances, it is essential for Trump to pursue a comprehensive trade treaty with China — one that provides a stronger and more lasting solution than a simple trade agreement. For this to be effective, the Senate must approve the treaty, and Trump should promptly sign it into law.
This strategy serves a dual purpose: It not only prevents a future Democrat president from easily reversing the trade deal but also sends a decisive message to Xi that his delaying tactics will no longer be tolerated. Additionally, a trade treaty reinforces America’s steadfast commitment to holding the Chinese government accountable, regardless of who is in the White House.
As things stand, Xi will likely continue to retaliate against the United States using every tool at his disposal, trying to avoid any sign of capitulation for as long as possible. Nevertheless, it’s important to recognize that the Chinese economy remains heavily dependent on U.S. export markets. Ultimately, Xi will need to return to the negotiating table.
Considering that this is Trump’s second term, he isn’t merely looking for a quick win; he aims to leave a lasting legacy. To accomplish this, he should draw from the lessons learned during the previous trade war. By steering clear of a phased approach, decisively closing loopholes, confronting the most challenging but vital issues upfront, and legally codifying the trade deal, Trump can secure a win in his trade war with China, protect U.S. interests, and ensure a stable and prosperous future for the American people.
