What If China Cut Off Trade with the US Completely?

On April 10, Trump raised tariffs against China to 145% and declared, “We are waiting for their call.” In response yesterday, China fired back by saying, “A tariff-wielding barbarian who forces other nations to call and beg for mercy should never expect such a call from China.”

Why doesn’t China worry about Trump’s extravagant numbers and aggressive bargaining tactics? In fact, public statistics prove that even if China were to immediately halt all trade with the United States, it wouldn’t be the end of the world for China. However, if China were to stop buying just one American product, the U.S. economy could spiral into a deadly cycle.

In 2024, China’s total export value reached $3.58 trillion, while the Office of the U.S. Trade Representative reports that U.S. imports of Chinese goods in 2024 totaled $438.9 billion. This means that even if China and the United States completely ceased doing business with each other, China’s foreign trade exports would still exceed $3 trillion—well above the 2020 level of $2.73 trillion. It appears that Trump has forgotten there is more to this world than just the United States; there is also the European Union, Russia, and the Global South.

In fact, even if the entire EU were to join the U.S. in completely stopping trade with China, it wouldn’t be devastating for China. According to Euro News, in 2024 the EU imported goods worth €517.8 billion, around $586 billion from China. That means if both the U.S. and the EU immediately ceased buying Chinese goods, China’s export volume would still reach over $2.5 trillion—around same level as 2018’s $2.65 trillion.

And what does a reversion to 2018 really mean?

Back in 2018, the U.S. government imposed a tariff on approximately $200 billion worth of Chinese goods. Yet during that same time, China was making significant strides in its economy, technology, and diplomacy. For example, India attended the Shanghai Cooperation Organization summit for the first time, Hainan Province was designated as a free trade zone, the Chang’e-4 probe achieved the historic first landing on the far side of the Moon, and nations such as the Dominican Republic, El Salvador, and Burkina Faso severed their so-called “diplomatic relations” with Taiwan island.

Thus, in the worst-case scenario envisioned by Trump’s tariffs—namely, a complete halt in China-U.S. trade—China’s economy might only revert to its 2018 state. For many Chinese, 2018 is even a somewhat nostalgic and favorable period. There’s really nothing to fear, which is why China has made it clear that it is prepared to see this through.

Now, let’s consider another angle: what if China were to stop purchasing one specific American product—U.S. Treasury bonds?

Currently, the U.S. government carries nearly $36 trillion in debt. However, a declining American manufacturing sector finds it difficult to generate the trade surpluses needed to ease the debt crisis—a challenge that is one of the primary reasons behind Trump’s tariff war with China. The solution, though, is flawed right from the start. Since April 4, the yield on the 10-year U.S. Treasury note has surged to about 4.5%.

This rise in yields spells disaster for the U.S. economy, and here’s a simple explanation: Imagine you have a government bond purchased for $100 that will pay you $103 after 10 years—a 3% return. Now, picture someone urgently selling a similar bond for only $90. A new buyer would still receive $103 in 10 years, netting a return of $13 instead—an attractive yield that has sharply increased compared to before.

What this tells us is that people are selling U.S. government debt because they no longer have confidence in its value. Jonathan Cohn, head of U.S. rates desk strategy at Nomura Securities International told Reuters, the underperformance of Treasuries compared to swaps signaled “heavy foreign real money selling,”

As more investors sell, bond prices fall and yields rise. The problem is that the U.S. government must continuously borrow money by issuing new bonds to pay off the old ones. With market confidence eroding, the government is forced to offer even higher interest payments to attract buyers. However, an executive catering for hedge fund clients at a large bank, speaking on condition of anonymity, told Reuters investors have been looking for alternatives to U.S. assets amid market volatility, including alternatives to U.S. Treasuries.

Over time, these ballooning interest payments could grow so large that even the entire annual income of the country wouldn’t be sufficient to cover them, potentially pushing the U.S. economy toward a severe crisis—or even collapse.

Now, the question remains: who is selling U.S. debt? According to CNBC, as of January 2025, China holds around $760 billion in U.S. government bonds, making it the second-largest foreign holder after Japan. Notably, Japan’s Finance Minister recently asserted that the nation has no intention of using its U.S. Treasury holdings as a bargaining chip against Trump. So, it’s worth pondering: who really crafted this masterpiece of economic leverage?

Even for Trump, this should not be a very difficult problem.

Editor: Charriot Zhai