The relationship between the US and China is intricate and multifaceted.
Chinese imports tend to be relatively inexpensive, allowing China to help finance US consumption.
Nevertheless, about 20% of China’s economy depends on exports, and only around 3% of that comes from exports to the US.
In contrast, exports comprise 11% of the US GDP, with exports to China accounting for 7.5% of the total as of 2022.
However, examining only the nominal figures does not reveal the complete picture. A more pressing question is which country can inflict more significant economic pain. Losing access to the vast Chinese market would be damaging and affect the US stock market.
Additionally, US companies face significant barriers to entering the Chinese market, particularly with joint venture regulations, whereas Chinese firms can operate in the US relatively efficiently. On the other hand, China would suffer if it lost the US market to competitors like Taiwan, Mexico, Vietnam, or even India.
When the Trump administration imposed tariffs in 2017, Chinese companies and the government absorbed the costs to maintain their market share in the US.
Politically, China is less likely to find allies in Washington than Mexico and Canada. The US political class is prepared to accept higher costs to prevent China from achieving market dominance in the US. To the US, China represents competition, whereas Canada and Mexico are not.
This situation is not likely to resolve quickly with a “fold”; rather, it will be a long process that must ultimately yield benefits for both nations.
