US President Donald Trump has recently ratcheted up his tariff offensive. Last week, his administration unveiled an additional 34 percent tariff on all Chinese goods imported into the United States, bringing additional duties on all Chinese imports to the US to well over 54 percent when existing tariffs are taken into effect. 

Beijing responded a couple of days later with its own baseline 34 percent tariffs on all American imports, as well as other measures, including export controls on rare earth minerals and trade restrictions on specific US companies.

Also, on Monday, the US president threatened to significantly ratchet up the trade war between the world’s two largest economies by slapping an additional 50 percent tariff on Chinese imports midweek if Beijing does not remove its retaliatory tariffs.

Tariffs seem to be a threat repeatedly used by Trump, not only against China but in general against the whole world, including close allies such as Canada and the European Union. Therefore, the risks of a new and even more expanded trade war are higher than ever. In theory, that could negatively affect the whole world, including the United States itself and China. Once again this will be the result of Trump’s bet on protectionism and bilateralism instead of free trade and multilateralism, which actually brought great prosperity to the US, not to mention enhancing its global influence.

Indeed, history has shown that protectionist trade policies rarely achieve their intended goals.

To cite one example, the US Smoot-Hawley Act, which raised tariffs in 1930 on over 20,000 goods imported into the US, is often considered to have started a global trade war, which led to a massive decline in global trade by 66 percent from 1929 to 1934, according to a study from the University of Western Australia.

A more recent example could be the US tariffs imposed on steel back in 2002 and 2003. American steelmaking, once responsible for more than half of global production, had been struggling since the 1980s, declining to less than 10 percent by the early 2000s. The George W Bush administration in 2002 imposed “safeguard” tariffs on imported steel of up to 30 percent. The move drew outcries from US trading partners such as the Republic of Korea, Russia and the EU, which immediately drew up proposals for retaliatory tariffs on US chicken, textiles and airlines. Furthermore, the tariffs raised prices for American industries that bought steel as an input material, leading to an estimated loss of nearly 200,000 jobs in the steel-consuming sector, more than the total employment of the US steel industry. In 2003, the World Trade Organization ruled against the tariffs, and they were repealed shortly after.

Currently, some experts predict that Trump’s tariffs may plunge both the US and the global economy into a recession. Other economists are warning of a potentially worse outcome for the US economy — stagflation — which refers to periods of economic distress when growth falters even as prices remain very high. Ordinarily, inflation eases when the economy contracts.

The US last experienced stagflation in the 1970s and early 1980s, when oil production became more costly, and inflation surged. Reduced consumer spending led to a slowdown in economic growth and increased unemployment.

In any case, by attempting to apply tariffs on China, Trump may inadvertently push Beijing to reinforce its industrial policies, expand its global trade alliances, and further reduce China’s dependence on the US market.

To some extent, the rise of economic isolationism, epitomized by Trump’s trade wars, has left a leadership vacuum in global trade governance. Against this backdrop, China, with its vast manufacturing base, ambitious Belt and Road Initiative, and increasingly assertive role in multilateral institutions like the WTO, has an unprecedented opportunity to advocate for a more interconnected and inclusive global economy.

Through platforms such as the Regional Comprehensive Economic Partnership, China has demonstrated its commitment to fostering open trade in Asia. Similarly, the BRI has extended China’s influence far beyond Asia, connecting over 140 countries through investments in infrastructure, energy, and logistics. This network offers an alternative model to the inward-looking policies seen in some Western nations. China’s increasing promotion of the renminbi in global trade further strengthens this position, reducing dependency on the US dollar and providing emerging economies with an alternative currency for settlement.

Indeed, this could bring China closer to the EU, and China also has the opportunity to lead the Global South.

Certainly, Trump’s tariffs could push China to strengthen its leadership among Global South nations by presenting itself as a champion of free trade and economic cooperation, since China may further redirect its exports and investments toward Africa, Latin America, and Southeast Asia, deepening its economic ties with those regions.

Additionally, countries in Africa and Latin America may begin to see China as a more stable economic partner, especially if Washington prioritizes economic nationalism over global engagement. China’s ability to provide low-cost financing, infrastructure projects, and technology partnerships will likely become even more attractive to those nations as they seek reliable development opportunities.

Another potential shift could come in the financial sector. If China is forced to trade more with the Global South, it may increase the use of the RMB in international transactions, further challenging the dominance of the US dollar. This could accelerate the de-dollarization movement among developing nations, which have already begun exploring alternative financial systems. As I have mentioned in previous articles, the Global South’s expansion can create the potential for using currencies other than the US dollar, for example via central bank digital currencies. China could indeed internationalize the RMB through the digital yuan, which will allow some US-dollar-denominated international trade transactions to convert into RMB-denominated ones.

For instance, BRICS, alongside the BRI and the RCEP, presents one of the best opportunities for China to internationalize its digital yuan, with Hong Kong playing an important role.

Focusing on Hong Kong’s role in the digital yuan, the special administrative region can play a key role in helping the yuan to internationalize, given its competitive advantages as the world’s largest offshore RMB business center. According to the Society for Worldwide Interbank Financial Telecommunication, more than 70 percent of global offshore RMB payments are processed in Hong Kong. Through initiatives such as the Bond Connect and Stock Connect arrangements, the city has made it easier for international investors to access the Chinese mainland’s capital market, helping integrate the RMB into global investment portfolios. In recent years, Hong Kong has also facilitated RMB clearing worth trillions annually, reinforcing its role as a critical conduit between the mainland and the global economy. By promoting RMB trade settlement and encouraging its use in BRI-related projects, China can reduce dependency on the US dollar while providing a stable currency option for developing countries. Furthermore, Hong Kong’s expertise in financial innovation — particularly in digital assets — could play a pivotal role in advancing China’s digital RMB, potentially transforming cross-border payments and trade.

In summary, as the US and China are the world’s two major economies and are intertwined in today’s globalized world, it is vital for both countries to cooperate.

However, if Trump insists on applying tariffs to Chinese goods as well as those from other countries, the results may differ from what he intended. This approach could potentially lead the US economy into recession. As for China, such measures could backfire in its favor by encouraging many countries to align more closely with it, thereby increasing its influence not only within the Global South but also around the world.

The author is a fintech adviser, researcher, and former business analyst for a Hong Kong listed company.

The views do not necessarily reflect those of China Daily.