Is the US actually too chicken to take on China for trade?

The United States finds itself in a precarious position, seemingly too hesitant to confront China in the realm of trade. Despite China's concession in the trade war in October, the Trump administration opted not to escalate further, as imports from China had been dwindling, falling by a substantial 40% between June and June 2024. However, the reality is that the US has not won this battle, and there are compelling reasons to believe it may be reluctant to take decisive action.

At a recent press conference, White House trade adviser Peter Navarro expressed outrage over Chinese-made components found in recliners imported from Vietnam. He cited a Commerce Department analysis revealing that $67 billion worth of goods from China were transhipped through Mexico, India, and Vietnam in 2025. The White House released a report titled "The Great Transhipment Scam," which highlighted the negative impact of rerouted Chinese goods on US manufacturing jobs in cities such as Milwaukee, Cleveland, Toledo, and Youngstown.

Despite these efforts, the White House has unveiled an AI-powered border "detective" tool to monitor and punish those involved in rerouting Chinese goods. This tool, however, is unlikely to restore lost jobs in the affected American manufacturing communities. Moreover, even if China were to crack down on rerouted imports, the US import bill remains higher than in 2024, and it is unlikely to deter China's growing exports.

What is particularly perplexing about the White House's approach is their reliance on AI sleuthing rather than a more direct solution. The undervalued Chinese yuan could play a crucial role in curbing China's massive exports, which not only overwhelm the US market but also threaten industrial development globally. While some economists may argue against this perspective, citing fundamental reasons for China's trade surplus and the US trade deficit, addressing the yuan's weakness could help rein in China's exports and potentially reduce the US budget deficit.

The exchange rate is indeed a symptom, not the root cause of China's export dominance. Addressing the underlying economic issues, such as stagnant household consumption in China, may lead to a natural appreciation of the yuan. However, this approach requires pressure on China's government, a challenge the US has not been willing to undertake.

In the meantime, China's share of global manufacturing exports has surged from 3% to 20% since 1995, accounting for over half the global exports of hundreds of manufacturing products. Its current account surplus, equal to approximately 5% of its GDP, imposes a significant burden on global demand.

History suggests that currency adjustments can drive economic realignment and help reduce trade imbalances. As Brad Setser of the Council on Foreign Relations points out, revaluing the yuan could lead to other policy changes that would help alleviate the world's trade disparities. Ideally, the US should coordinate efforts with other countries, such as Europe, to pressure China to revalue its currency.

This collective approach could potentially slow export growth, stimulate domestic consumption in China, and encourage fiscal restraint in Washington.