A leading US economist has likened Donald Trump’s tariff battle with China to the Vietnam war, arguing that both sides will be caught in a quagmire and unable to find a face-saving exit.
Adam Posen, the head of the Peterson Institute in Washington and a former Bank of England policymaker, spoke to the Guardian after penning an article for the US magazine Foreign Affairs. He said Trump’s tactics had “echoes of presidents Johnson and Nixon in the Vietnam war, unable to believe that they wouldn’t win if they only upped the attacks, and unwilling to negotiate a real peace”.
Posen said Trump and the US treasury secretary, Scott Bessent, who defended high tariffs on China on Wednesday, were “profoundly mistaken”, accusing them of boasting about the level of self-harm the US was willing to inflict on itself and how this would secure victory against China.
Many economists have accused White House advisers of misunderstanding the mechanics of international trade and how industries manufacture across borders, sometimes to benefit from cheaper labour, but also to access skills and technologies unavailable in their home country.
Rollercoaster financial markets, which have struggled all week to put a price on the tariff war, were spooked on Friday after China increased its tariffs on US goods from 84% to 125% and the US returned fire, saying it would push the total to 145%.
China has become the main battleground after Trump agreed a 90-day moratorium on the punitive tariffs he aimed at most other countries, leaving a 10% import charge in place.
Writing in Foreign Affairs, Posen said Bessent, a billionaire and former hedge fund manager, had wrongly likened the dispute with Beijing to a game of poker in which the US held all the best cards.
Bessent said: “I think it was a big mistake, this Chinese escalation, because they’re playing with a pair of twos. What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them.”
Posen said: “Bessent’s poker analogy is misleading because poker is a zero-sum game: I win only if you lose, you win only if I lose. Trade, by contrast, is positive-sum: in most situations, the better you do, the better I do, and vice versa. In poker, you get nothing back for what you put in the pot unless you win; in trade, you get it back immediately, in the form of the goods and services you buy,” said Posen.
More fundamentally, he said, the Trump administration believes “the more you import, the less you have at stake, and that is because the US has a trade deficit with China, importing more Chinese goods and services than China does US goods and services; it is less vulnerable.
“This is factually wrong, not a matter of opinion. Blocking trade reduces a nation’s real income and purchasing power; countries export in order to earn the money to buy things they do not have or are too expensive to make at home.
“What’s more, even if you focus solely on the bilateral trade balance, as the Trump administration does, it bodes poorly for the US in a trade war with China. In 2024, US exports of goods and services to China were $199.2bn and imports from China were $462.5bn, resulting in a trade deficit of $263.3bn. To the degree that the bilateral trade balance predicts which side will ‘win’ in a trade war, the advantage lies with the surplus economy, not the deficit one.
“Depriving US households and companies of hard or impossible to replace imports hurts the US far more than China suffers from lost sales,” he added.
The logic is based on game theory. Trump believes he has “escalation dominance” over China, which means the US has the ability to escalate a conflict without China inflicting pain in return.
“But this logic is wrong: it is China that has escalation dominance in this trade war. The US gets vital goods from China that cannot be replaced any time soon or made at home at anything less than prohibitive cost.
“Reducing such dependence on China may be a reason for action, but fighting the current war before doing so is a recipe for almost certain defeat, at enormous cost. Or to put it in Bessent’s terms: Washington, not Beijing, is betting all-in on a losing hand.”
