Can China Win the Tariff War?

The comment was not what I expected. And frankly, I felt sheepishly stupid.

I was proud of my purchase: a second phone—a global phone, one that I and my wife at the time could use for the month we’d be living in southern China. We’d spent the past year going through the processes of adopting a baby girl from a Chinese orphanage, and we would soon be on our way to Hefei and Guangzhou, China.

As part of my prep, I headed into the heart of Manhattan (we lived in northern New Jersey at the time), to an electronics shop famous for its up-to-the-minute tech-gadgets. This was late-summer 2004 and I was on the hunt for a phone that I could use in China since there was no chance that my Verizon-tethered phone at that time was going to offer any kind of network access in China.

I bought some kind of flip-top Nokia that was technological haute couture, assuming tech can be haute couture. All I needed was a Chinese SIM card, which I would get once we arrived in-country.

Which is where the sheepishly stupid returns to our story…

I walked into an electronics marketplace in Hefei—a city that is basically the equivalent of Starkville, Mississippi… meaning a city most people have never heard of. (No offense to Mississippi State Bulldog fans).

The guy at the counter took my phone, looked at it for a second, then looked up at me.

“Wow. This old technology,” he said, almost as though we were on a taping of Antiques Roadshow. “Where you buy this?”

I told him: “It’s brand new! I just bought it two weeks ago in New York City.”

He was stunned.

He turned to the other members of his crew and held my phone aloft, and started jabbering in Chinese. They all laughed.

He turned back to me: “I tell them, ‘This what pass for modern technology in America.’”

I got my SIM card and left, both embarrassed by my technological rock, and shocked that the country I assumed was trailing America was, in fact, leading America in many ways.

This is, alas, not a dispatch a lot of people will like.

It is, however, a dispatch a lot of Americans need to read, because it highlights a message a lot of Americans really—really!—need to understand.

And that message is this: China is not some Third World nation populated by dirt-poor workers living in abject poverty and attaching screws to an iPhone for 7 cents a week, while their 8-year-old son works in a child-labor factory next door sewing swooshes onto a Nike backpack.

I see way too many morons on Twitter/X and TikTok who spew the most idiotic sentiments about how US society and wealth sweep the floor with China… that China is an also-ran country, at best, that will never achieve what America has achieved.

It’s all so demonstrably wrong.

Today, I want to explain why this kind of moronic thinking is so dangerous.

To beat your opponent, you have to understand your opponent. You have to know what you’re fighting against. Way too many Americans have zero clue about that.

To be clear, I’m not cheerleading for China and I’m certainly not claiming China is better than America. Instead, I’m saying that China is not the impoverished hellhole so many think it is, and that if you’re smart, you’ll accept China for what it really is, because that’s the only way to win the game. Think about it this way: If Team USA baseball assumed that every other nation is inferior to America because we invented the game and, thus, we’re the best, then Team USA would be ill-prepared for games against tiny little countries like the Dominican Republic and Taiwan… both of which beat Team USA, because those countries produce equally good baseball players.

Consider this: China’s middle class now approaches 525 million people, basically half the population, roughly the same percentage as the US. That 525 million marks the largest middle class in the world today, 2x the size of the US middle class, and their combined disposable income—their consumption—is larger than the entire Japanese economy.

This goes to the heart of the current tariff war because China is not as dependent on the US as too many in the US media assume. A growing and increasingly affluent middle class means Chinese leaders can use incentives to drive domestic consumption that will fairly easily replace lost US consumers.

Just as consumer demand in the US has driven innovation over the years, so too does domestic consumption in China drive local innovation. BYD, a Chinese electric vehicle maker with some stunning vehicles, recently announced new battery technology that offers 250 miles of driving range with a charge of just 5 minutes. Nothing in the US comes close to that… and BYD’s effort was largely the function of meeting local Chinese demand, given that BYD sells inside China nearly 2x the number of cars that GM sells to Americans every year.

I’ve traveled to and through China several times—from Beijing to Shanghai to Changsha, Hefei, Guangzhou, and beyond.

Anyone who thinks China is 17 steps behind America needs to lay off the red, white, and blue Kool-Aid.

Arrogance loses wars.

And that’s an important message that America needs to fully grasp.

China is gunning for America’s role as the pre-eminent global economy. To think that will never happen—to think of it as laughable—is a huge mistake. Arrogance.

It will happen. There’s no question in that fact.

Empires are never immortal.

Each one of them across history has grown fat, dumb, happy, and arrogant. They each assumed that one or another gods had smiled upon them and had ordained their rise to permanent power…

And each one ultimately collapsed into a pile of bruised hubris.

This time is no different.

Question is: Who will be prepared for the change that’s coming?

Those who assume America will always be #1 and that China is just a poser putting kids to work to build their economy have been listening to way too many egregiously ignorant media mouths in all the wrong news outlets.

Those who understand that China is an economy on the rise, and that China’s middle class is increasingly better off than an American middle class in decline… they’re the ones who will stop and consider the myriad ways this change plays through their financial life.

They’ll be the ones who recognize that this moment marks a huge risk for the dollar’s supremacy and the global financial world order.