Chinese Communist Party General Secretary Xi Jinping has firmly responded to U.S. President Trump's "reciprocal tariffs" campaign launched globally, evolving into a Sino-U.S. tariff war. Foreign media believes that Xi firmly believes in "the rise of the East and the decline of the West", and is convinced that his strategy is working. Thus, despite not having an economic advantage, Xi is still prepared to engage in a protracted war with the U.S. that goes far beyond trade.
The Wall Street Journal published an article on the 16th stating that compared to Trump, Xi is in a more favorable position to fight a protracted war. However, the question for the outside world is: How much pain and cost are the Chinese people willing to bear? This highlights the inevitable economic impacts of Xi's tough stance against the U.S.
The article pointed out that even before the outbreak of the tariff war with the U.S., the Chinese economy was already in serious trouble. An unprecedented real estate bubble burst, leading to the evaporation of tens of trillions of dollars in household wealth, undermining consumer confidence and spending. The increasing debt burden has made it difficult for governments at all levels to maintain a balanced budget.
Xi Jinping's policy is "manufacturing-centric"
Meanwhile, under Xi's "manufacturing-centric" policy, Chinese factories have been producing aggressively despite weak domestic demand, worsening domestic deflation and exacerbating trade tensions between China and other economies.
The article mentions that overall, today's Chinese economy is much weaker than during the first term of Trump in 2018, when the first trade war between the U.S. and China broke out, but China's economic growth rate was still close to 7%. The Chinese government has set an economic growth target of only about 5% this year, which now seems "optimistic".
This article points out that weak economy has not stopped Xi from taking a tough stance against the U.S. because he firmly believes in "the rise of the East and the decline of the West", with "East" and "West" representing China and the U.S., respectively. Xi's confidence stems from China's progress in certain fields, such as electric vehicles (BYD) and AI (DeepSeek).
Replacing old growth engines with new growth engines
Therefore, as long as China's top leader believes that surpassing the U.S. in fields vital to "great power competition" is crucial, overall economic weakness is something "that can be tolerated and controlled". Xi and his core leadership circle see the economic challenges China faces today as "growing pains" that are inevitable in the transition process from old growth engines like real estate to new ones like electric vehicles and semiconductors. Xi believes his strategy is working.
However, the article emphasizes that this understanding does not mean Xi can completely ignore the economic and social costs of his policies. After all, sustained growth and employment are still important for the CCP to maintain its regime. But since enterprises are hit by U.S. order cancellations, the Sino-U.S. tariff war is expected to lead to more unemployment.
Nevertheless, despite many economists indicating that China needs a policy shift to sustain economic growth, there is little evidence that Xi is willing to take advice and fundamentally shift the "manufacturing-centered" economic policy to a "consumer-centered" policy. Such a change would require a thorough rethinking of China's economic and even political model.
The article suggests that in the short and medium term, the Chinese government may increase government spending on manufacturing and large-scale projects to cushion the economic blow. This stimulus measure aims to promote growth by boosting demand for steel and other industrial products and by creating jobs, especially those related to construction. However, this would continue to exacerbate overproduction and further increase debt.
In conclusion, despite not having an economic advantage, Xi is prepared to engage in a protracted war with the U.S. that extends far beyond trade.