The Nature of This Round of the Tariff War: Reactive Defense Rather Than Proactive Offense
The tariff threats launched by Trump in October 2025 were, in essence, a reactive response rather than a premeditated offensive. Although the Trump administration’s earlier imposition of special port fees on Chinese vessels was indeed a proactive move, the tariff actions in October were more of a knee-jerk reaction born of desperation. Since April 2025, Trump has been advancing a global geopolitical strategy of “encircling the city from the countryside”: first negotiating tariff agreements with peripheral nations such as Japan, South Korea, and Europe, while simultaneously courting countries along the Belt and Road route, with the aim of accumulating enough leverage from these external partners to then pressure China. As of October, his actions have largely aligned with this strategy. Trump has been touting his role in resolving conflicts in India-Pakistan, the Middle East, Russia-Ukraine, and Thailand-Myanmar, even going so far as to express interest in winning the Nobel Peace Prize. Essentially, he aims to project a positive image of the United States, gain the upper hand in the propaganda war, and facilitate the rallying of more nations to jointly target China. In this tariff war, he has packaged himself as the victim using precisely this logic.
Trump’s Time Pressure and Misjudgment
According to Trump’s plan, the more countries that “surrender” before the U.S.-China summit in late October, the stronger his bargaining position will be, and the greater the likelihood that China will show weakness. He intends to use these bargaining chips to coerce China into finalizing a framework agreement in November, thereby reaping political capital for the 2026 midterm elections. He even hopes to position himself as the first president of the 21st century to “defeat China,” helping the Republican Party secure its base for the 2028 presidential election. To gain more leverage, he chose to impose additional fees on Chinese ships, forcing China to make concessions. He believed that with the APEC meeting on October 31 approaching, sudden pressure would leave China no time to react, forcing it to compromise. However, he severely underestimated the depth of China’s policy toolkit. On October 9, China issued unprecedented rare earth control regulations—equivalent to a Chinese version of the FDPR—which completely exceeded the Trump administration’s expectations. Just as the U.S. restricts lithography machines and chips, China restricts rare earths. This move was spot-on, effectively dealing a painful blow to the U.S. in one fell swoop—a strategy that should have been implemented back in April.
Rare Earth Controls Shift the Balance of Power
Historically, the U.S. has dictated the pace of the Sino-U.S. tariff war, consistently holding the upper hand. But this time is different. With the introduction of rare earth control policies, the initiative has shifted to China. Trump was completely caught off guard and, in his haste, could only resort to the old tactic of threatening China with 100% tariffs. With little time remaining before the APEC meeting on October 31 and the Federal Reserve meeting on October 29, he cannot come up with countermeasures on the same scale as the rare earth restrictions. He can only temporarily play the tariff card, which will yield very little actual effect.
Trump’s Dilemma
Trump now faces only two paths: either retaliate against China with measures of equal magnitude—which would result in a triple whammy for U.S. stocks, currency, and bonds, with the Chinese stock market following suit in a mutually destructive outcome—or make further concessions to China while simultaneously launching a domestic “Trump Wins” propaganda campaign to mislead the American public into believing that China has backed down. This would allow the Trump family to benefit from asset appreciation and satisfy the egos of his supporters, achieving a win-win situation. If Trump chooses to concede, he must back down completely and thoroughly reverse his hardline stance toward China; otherwise, China will no longer engage in endless tariff negotiations with him. The U.S. has been using tariff negotiations to buy time precisely to rally Japan, South Korea, and Europe during this process, accumulate leverage, and gain the upper hand in negotiations with China. If Trump were to make a complete concession, he would likely abandon his hardline stance toward China and instead turn his sights on allies such as Europe, Japan, and South Korea, sacrificing their interests to bolster U.S. strength. After all, Trump cares only about U.S. interests; other nations are merely bargaining chips to be used as he sees fit. As long as the U.S. cannot establish an absolute advantage over China, sacrificing allies is an inevitable choice.
The Long-Term Strategic Landscape Amid Decoupling
Currently, both China and the U.S. are vying for the initiative; whoever gains the upper hand will be able to dictate the pace of the decoupling process. The U.S. aims to repatriate its semiconductor industry and revive high-value-added sectors such as defense, semiconductors, shipbuilding, and aerospace before complete decoupling. They fear that after decoupling, the AI sector and high-value-added industries will experience a bubble burst due to shortages of semiconductors and rare earths. China’s goal is to break through the chip blockade before decoupling occurs, expand the use of the renminbi, and enable direct purchases of critical minerals and fossil fuels using the renminbi. Our concern is that financial sanctions following decoupling will deal a severe blow to the Chinese economy. At present, China has already made breakthroughs in the chip sector, and the scope of renminbi usage continues to expand. Meanwhile, the United States remains mired in zero-sum thinking and is unwilling to accept the reality of fair competition. This contest is far from over; the TACO agreement is no longer significant, and the real battle has only just begun.