Thread by @Brad_Setser

China -- per the excellent reporting on the WSJ/ @Lingling_Wei -- appears to be pursuing a strategy of applying maximum pressure in pursuit of maximum concessions ... full tariff rollback, rollback of export controls, relaxation of nat'l security review on Chinese investment

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China though may have miscalculated -- Trump's "Truth" suggested real frustration. Betting on an even bigger (and more publicly visible TACO) has its own risks

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https://x.com/RushDoshi/status/1976655818889035923

China really has put its full economic toolkit on the table -- using its control of grain and oil seed imports (COFCO) to zero out orders for beans (having a bit of a stockpile helps), and rolling out an extraordinary set of export controls ...

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The reality that the US now struggles to counter is that a country that controls a third of global manufacturing capacity dominates a lot of chokepoints (and goods where competition is typically supplied by competition among Chinese companies are great sources of leverage)

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Trump is threatening to put more tariffs on -- which is his natural response. To have a real impact, those tariffs will need to be extended to cover embedded Chinese content in goods with final assembly in third parties ...

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And to be effective, the new round of tariffs need to be tariffs that the US can credibly sustain -- unlike the 145% tariffs of April ... and that means a willingness to eat a bit of bitterness (not the easiest thing for a gold loving President to accept)

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Trump's truth asserted that the US controls 2 times as many choke points as does China. I have my doubts -- the choke points that have been identified (jet engines/ parts of the C919) only impact (for now) a small part of the Chinese economy ...

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The US can exert substantial control over chip exports to China (via leverage over TMSC & US chip designs -- not so much b/c of actual US chip production) but it seems (would want to confirm with real experts) that China's export controls may generate reciprocal leverage

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my colleague (and friend) @RushDoshi thinks that the US will have to cross retaliate with financial sanctions to level the negotiating table -- that implies a serious escalation

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https://x.com/RushDoshi/status/1976686186195206618

@RushDoshi The trade war with China neither proved easy or easy to win (China actually went on an export tear and its manufacturing surplus doubled globally after the Trump term 1 tariffs) --

Supply chain wars will be even harder. The US starts from a weaker position too

10/10

@RushDoshi p.s. anything by @KeithBradsher on China's control over rare earths is worth reading closely. China clearly decided to show its full hand yesterday; it thinks it has the high cards

nytimes.com/2025/10/09/bus…