A full-blown trade war has broken out between the superpowers USA and China: Donald Trump is imposing massive tariffs, China is retaliating, and Europe is caught in the middle. New punitive tariffs of an unprecedented scale have recently come into force – 145 percent on Chinese exports to the US and 125 percent on US goods to China.

While Washington is seeking maximum economic deterrence in the tariff dispute, Beijing is responding with strategic unity. The transatlantic partnership is crumbling. New and unusual alliances are forming. How is China reacting behind the scenes – and what can Europe do in response to these shifts of global power?

Susanne Weigelin-Schwiedrzik, sinologist and member of the Austrian Academy of Sciences (OeAW), is analysing the geopolitical consequences of the conflict. She explains why the tariff dispute is putting Europe in a bind – and what role diplomacy and historical parallels play in this global power game.

Will the Tariff Dispute Escalate into a World War?

The US and China are engaged in a trade war. What are the consequences?

Susanne Weigelin-Schwiedrzik: The consequences are not yet clear. This situation is unprecedented. That is why the markets are extremely unsettled. The stock market is going up and down – mostly down rather than up. This inability to predict the future is also problematic for the US government. Eighty percent of the products sold by US supermarket chain Walmart – excluding food – come from China. And there are serious concerns that China will now very quickly sell off all the government debt that the People's Republic has bought in America. This could cause interest rates for the government, the economy, and consumers to rise significantly in the US. This would greatly reduce America's attractiveness to foreign investors. Trump wants exactly the opposite: to push China out of international trade and attract investors to America.

China is anything but calm.

Is that why China has been so unimpressed by pressures from the US?

Weigelin-Schwiedrzik: China is anything but calm. The leadership around President Xi Jinping held a four-day secret meeting to discuss how to deal with the situation. The Chinese economy has been put under pressure at a time when it is already in a difficult position due to rising unemployment. The leadership sees the danger of major social upheaval and that Xi Jinping's position could be seriously undermined. China therefore wants to use its leverage to put US policy under pressure and draw neighboring countries such as Vietnam, Cambodia, and Malaysia to its side. The aim is to further divide the already divided elites in the US and push them to want to remove Trump. Put simply, Donald Trump wants to get rid of Xi Jinping, and vice versa. Both have power over each other, and the risk is great for both.

According to a paper by the Chinese leadership, the possibility of armed conflict cannot be ruled out.

Could the economic and political conflict with China escalate into a military one?

Weigelin-Schwiedrzik: According to a paper by the Chinese leadership, which has so far only been leaked to Chinese-language sources, the possibility of armed conflict cannot be ruled out. This is a significant escalation of the situation compared to the previous state of affairs. Thus, we must unfortunately expect that another conflict will be added to the wars in Ukraine and the Middle East. And when there are three fires burning in the world, that is usually called a world war. Incidentally, China also has domestic reasons for communicating to its population that war is imminent: there have been fierce disputes within the leadership recently. With the prospect of war, it is possible to convince the population and the elites that they must close ranks and defend themselves against the external enemy.

An Alliance between China and Europe?

Europe is being dragged into the trade war. What options does the European Union (EU) have?

Weigelin-Schwiedrzik: Trump has imposed tariffs on almost all countries with a 90-day deadline. Now everyone is lining up to negotiate with him. He wants to send a signal: You are dependent on us, and part of these negotiations is how you will decouple yourselves from China. Those who have good economic relations with China and export heavily to America are coming under pressure. This includes Europe. In addition, the EU has a weak hand with Trump because it supported Biden and Harris in the election campaign. That is why the EU is at the back of the queue for negotiations. Trump will also try to use tariffs to prevent Europe from continuing – or increasing – its support for Ukraine in the war against Russia. Because Trump wants to end this war.

The EU is at the back of Trump's waiting list for negotiations.

Historically, the breakdown of transatlantic relations has led to sudden and unusual alliances: the US moving closer to Russia and the EU to China?

Weigelin-Schwiedrzik: The alliances are not that unusual. America's course is a “reverse Kissinger”: in the early 1970s, Secretary of State Henry Kissinger and President Richard Nixon forged a surprising alliance with China in order to reach agreement with a previously key opponent in the Vietnam War. Now they have allied themselves with Russia. The reason is that the US, Russia, and China are the three major nuclear powers. Russia and China have good relations, and Trump found himself facing two highly armed nuclear powers all on his own. He concluded that he had to ally himself with one of the two sides—in this case, Russia—in order to isolate China. However, the strategy contains unknown factors, such as the question: To what extent is it even possible to drive a wedge between Russia and China?

Ukraine as a Possible Loser in the Conflict

And do you see a rapprochement between Europe and China?

Weigelin-Schwiedrzik: Trump's actions will produce two losers: China, which is to be isolated. And Europe, which Trump acts as if it doesn't exist. The logical consequence would be for Europeans to cooperate with China. But Trump works with a “carrot and stick” approach, i.e., with praise and criticism: the more Europe approaches China out of economic necessity, the higher the tariffs on European products exported to America will be. We are in a terrible position. Plus, the Americans no longer guarantee that they would protect us from a possible Russian attack. It is perfectly clear that Europe would then find itself in serious trouble, economically, militarily, and politically.

Europe is in a terrible position.

So what could Europe do?

Weigelin-Schwiedrzik: None of the three major powers (the US, Russia, and China) considers Europe a major power. And what can a middle power do in such a position? It has to stay on good terms with all sides. It has to accommodate America, but not so far as to alienate China. And vice versa. We are under pressure from both sides and must learn to use diplomacy again. In the long term, Europe has only one logical option: to support Trump's policy on Ukraine. China also wants the war in Ukraine to end. If, on the contrary, Europe contributes to escalating the war, possibly not only with weapons but also with troops, then Europe will put itself in a difficult position vis-à-vis all three major powers. Ultimately, we would have to find a policy that is advantageous to both America and China.