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Though the first major trade deal was finally announced between the US and UK during the 90-day pause on tariffs, Marc Chandler, Chief Market Strategist at Bannockburn Global Forex, says that when it comes to the world's second largest economy, China is holding the winning cards in the global trade war, while Trump’s tariff gambit is more bluff than brilliance. “He’s miscalculating U.S. leverage,” Chandler quips, predicting a messy fallout: further trade spats, pricier goods, and an economy hitting the brakes as we speak. Here’s what he had to say in a recent in-depth interview with Financial Sense.

China’s Upper Hand: Creditor Power and Economic Agility

Chandler frames the U.S.-China trade war through a realpolitik lens, emphasizing that creditor nations hold sway over debtor ones. “It comes down to power, and traditionally in realpolitik, the creditor nation, the surplus country, is in a stronger position,” he quips. China, flush with surplus, struts as the global lender, while the U.S., a deficit-drowning debtor, scrambles to keep up. This isn’t just theory—it’s the economic equivalent of China holding the bigger stick. The U.S.-China bromance, once dubbed “Chimerica” by historian Niall Ferguson, is now a messy divorce, and the U.S. is stuck with China’s stuff. Chandler shares a gem: a fast-food chain’s broiler needs 1,000-plus parts from China. Good luck swapping that out for Made-in-USA widgets. “What is easier to replace?” he muses, pointing out that China can hawk its goods elsewhere faster than the U.S. can rebuild its supply chains.

China’s game plan is slick. At home, it can juice demand with rate cuts or fiscal candy. Abroad, it’s eyeing new markets like a hawk. While the U.S. obsesses over the yuan-dollar dance, China’s currency is sneaking a discount against the euro and yen. “Last week, the Chinese currency fell to record lows against the euro. It is at three-year lows against the Japanese yen,” Chandler notes with a nod to China’s cunning. This makes Chinese exports a steal in Europe and Asia, letting Beijing shrug off the $400 billion in U.S. demand—about 4% of its GDP—zapped by tariffs. “I think that’s doable,” he asserted, highlighting China’s economic resilience.

Trump’s Miscalculation: Overestimating U.S. Leverage

President Trump’s betting the farm that tariffs will make China beg for mercy, but Chandler’s not buying it. “He wants China to cry uncle. And I don’t think China will,” he says, channeling Beijing’s historical grit. The U.S. keeps blinking, tossing out tariff timeouts like a kid delaying bedtime, which only weakens its hand. Building factories to replace Chinese goods? That’s a years-long slog, not a quick fix. Chandler’s blunt: the U.S. is more hooked on China’s supply chain than a teenager on TikTok.

Then there’s the diplomatic facepalm. Trump’s “you’re with us or against us” vibe is alienating allies faster than a bad karaoke night. Take Australia, caught between its U.S. security blanket and its Chinese trade lifeline. “This ‘either you’re with us or against us’ mentality… might have fit in a world in which the U.S. was clearly the hegemonic power, but the U.S. is retreating from that,” Chandler warns. It’s like the U.S. is trying China’s failed “wolf diplomacy” and expecting a standing ovation. Spoiler: it won’t get one.

Recession’s Knocking: Markets Brace for a Bruise

Chandler’s got a grim forecast: the U.S. economy’s already wobbling, and these trade shenanigans are the final shove toward a 2025 recession. “I think it seems to me that’s more or less baked in the cake,” he says, citing the historical quirk where downturns love to crash a new president’s party. Early warning signs—like shrinking payroll taxes—hint at a labor market about to take a dive, especially with government layoffs and immigration curbs on the horizon. Consumer confidence and regional Fed surveys are screaming “uh-oh,” and businesses are freezing up like deer in headlights. “That uncertainty paralyzes businesses from making investment decisions, from making hiring decisions,” Chandler observes.

The Federal Reserve, led by Jerome Powell, is still humming a happy tune, but Chandler’s skeptical. He predicts rate cuts by mid-2025, not for inflation’s sake but because jobs are tanking. This could send the U.S. dollar, already wobbly, into a deeper slide. “I think that the break down is taking place,” he says of the dollar index’s recent dip below 100. A brief rebound might pop up—say, if a U.S.-Japan trade deal makes headlines—but the dollar’s long-term vibe is bearish, thanks to sagging U.S. interest rates.

Investment Opportunities: Diversification and Gold’s Rise

For investors, Chandler recommends a defensive stance amid U.S. market risks. “The US market is stretched,” he acknowledged, advocating diversification into foreign stocks and bonds, particularly in Europe and emerging markets, to hedge against dollar weakness. Gold, meanwhile, remains a standout asset. Central banks, including China’s, are boosting gold reserves, driving prices to around $3,300 per ounce. “A little bit of money really can pump the gold market up,” Chandler observed, given the market’s small size relative to global capital flows. He sees gold trending toward $3,500–$4,000, with pullbacks offering entry points. However, he cautioned that widespread bullishness—evidenced by retail demand at stores like Costco—signals a crowded trade, urging patience to avoid buying at peaks.

History’s Lesson: Don’t Be a Trojan Fool

Chandler channels historian Barbara Tuchman’s The March of Folly to warn that the U.S. is galloping down a well-trodden path of bad ideas. From Troy’s horse blunder to Vietnam’s quagmire, nations ignore wisdom at their peril. “I think that this is another chapter,” he says of the trade war, likening it to Rome shaking down its provinces or the U.S.’s post-WWI isolationist flop. Hope’s not lost, though—markets and Congress could rein in this tariff spree. “A big sell-off in stocks and bonds will get Washington’s attention,” he predicts, pointing to recent volatility as a “whiff of a capital strike.” As Churchill supposedly said, Americans do the right thing… after trying everything else.

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