Kyle Chan recently made this claim in a blog post:
There is no such thing as escalation dominance. Trump thinks the US will win in a trade war because China sells more to the US than the other way around. A tit-for-tat escalation on tariffs means the US will always be able to tariff more Chinese goods than vice versa. Adam Posen has recently argued it’s actually China that has “escalation dominance” (a RAND concept in nuclear deterrence) because China has other ways of escalating beyond tariffs, including potentially denying Americans access to Chinese-made goods from smartphones to medicines. However, the reality is neither side has escalation dominance because both sides have already gone far beyond trade measures. . . .
The US and China both believe they have escalation dominance, which makes the problem worse. US Treasury Secretary Scott Bessent said on CNBC that China had made a “big mistake” in retaliating against Trump’s tariffs because China was “playing with a pair of twos.” China’s Ministry of Commerce has said that China would “fight to the end.” While there are already signs that Trump is backing down, the confidence that each side feels—or at least tries to project—only fuels a downward spiral of recklessness and emotion-driven bravado.
I mostly agree with those points, but would like to add a few others. In China, the public has begun rallying around the flag. Here’s Bloomberg:
Financial investors, manufacturers in China’s eastern coastal region, policymakers in a range of departments and even elite factions that have lost out from Xi’s power grab are all rallying behind him. Even regular critics and entrepreneurs who have been pummeled by his policies in recent years want him to stand firm in the face of an unprecedented economic attack. . . .
“A few months ago, I would have said I’ve never known people to be so unhappy — with their lives, with Xi, with worries about the future,” said a Chinese toy and textile manufacturer who runs factories in Guangdong, India and Southeast Asia.
“Now, that’s all changed,” the person said. “People are still really worried about their jobs and income – they’re holding back from spending — but now the enemy is the US. They’re to blame for everything going wrong.”
In contrast, public opinion in America is sharply divided. President Trump is rapidly losing support, especially on question related to the economy and tariffs.
In addition, the Chinese public is far more accustomed to accepting economic pain than are America’s consumers, who have never experienced events such as the Cultural Revolution. Indeed the ability to “eat bitterness” is a core aspect of Chinese culture, and is not at all a prominent aspect of American culture. Here’s AI Overview:
The Chinese idiom “eating bitterness” (吃苦, chīkǔ) describes enduring hardship and adversity without complaint, often in the pursuit of a greater goal or personal growth. It signifies a stoic and perseverant attitude towards difficult situations, where the ability to suppress emotions and endure pain is valued.
So how did the administration miscalculate so badly? Perhaps they relied on a flawed economic model. Economists understand that the greatest benefits from international trade go to the country that imports goods. But most average people believe that it is exporters that gain the most from trade. Those holding that view are likely to wrongly assume that our trading partners hold a weak hand. Based on their public comments, Trump administration officials like Scott Bessent seem to suffer from this misconception.
I predict that the next few months will produce an unpleasant wake-up call. Of course I cannot be sure that this will occur. But there is one issue where I do have absolute confidence in my prediction, where there is almost metaphysical certitude. If there is a trade deal with China, the administration will declare it to be a “win” for the US, regardless of the terms of the deal.
PS. The term ‘escalation dominance’ originated during the Cold War with the Soviet Union.
