As Trump and China refuse to blink on tariffs, the biggest consumer splurge in history is over

The most powerful economy in human history — but can you buy a toaster?

The most daunting military ever — but why are our children's toys so expensive?

Even after he did a last minute U-turn, that's the future facing Americans in the new world of Donald Trump.

As they watched their 401K superannuation funds diminish by the day, the reality of a re-elected Trump was beginning to dawn on Americans. 

What Trump was doing, in the words of Australia's former Ambassador to China, Geoff Raby, could be "one of history's greatest acts of self-harm". 

Whether he lost his nerve, or this was all a game of chicken as his White House claims, Trump backed down by putting a 90-day pause on his "reciprocal" tariffs, instead announcing that almost all trading partners may be subject to the same "baseline" 10 rate instead. 

China, however, is a different story.

Trump has ratcheted up the pressure on his foe, Beijing, slapping a 145 per cent tariff on Chinese goods, effectively immediately. 

Since the end of World War II, large sections of the American public have gorged themselves on an eight-decade consumption binge of low-cost goods, most of them from China.

But as a US-China trade war now looms, that feast is likely over. 

One of Australia's most experienced bureaucrats and academics, Hugh White, observed that the Chinese are unlikely to escalate the current crisis as "they are not stupid, unlike the present mob in Washington".

To have someone such as Hugh White — who has held one of the most sensitive positions in the Department of Defence and has been one of Australia's key liaison officials with US defence and intelligence officials — describe the current US administration as "stupid" shows how much the world is changing.

Trump has already engaged in a trade war with China during his first term in office. 

But unshackled by the resistance he faced from his own Republican party during his first term, China is now seeing Trump Unplugged.

Why Trump is so fixated on tariffs

Central to Trump's view of the world is an obsession that the globe is made up of countries wanting to feed off the success of the US by protecting their own products by keeping out American goods.

For decades, Trump has believed that tariffs are the way for the US to level the international trading system. 

He believed that by putting tariffs of 34 per cent, for example, on Chinese goods coming into the US, then China would buckle and remove its restrictions on US goods into China, thereby leading to an increase in US exports, which leads to more US profits and more jobs.

In this, he's found a soul mate in Peter Navarro, his trusted trade adviser. 

It's difficult to overstate the closeness between the two men — Navarro went to jail for Trump, and those familiar with the White House inner circle say Trump will never forget that act of loyalty.

Add to that Trump's own belief in tariffs, and this is the Trump-Navarro show.

But the big problem with the Trump-Navarro tariff shock therapy as announced last week, in the bizarrely named "Liberation Day", is that it assumed there would be no reaction.

It assumed US supremacy. 

It assumed that the US could dictate a new world order and that others would follow.

And its biggest miscalculation of all, it assumed that China would not hit back, using the economic power that the Chinese Communist Party has been amassing for decades, but until recently has not fully deployed.

'No-one wins in a trade war'

Instead of meekly accepting the Trump-Navarro manifesto, China has responded to the new tariff regime by imposing exactly the same amount on US goods.

How dare China do that? How dare China do to us exactly what we've done to them?

And so an angry Trump threatened to retaliate against China's retaliation by hitting Beijing with additional imposts, taking to 125 per cent the effective tariff to be placed on all Chinese goods entering the US.

The next day, the White House clarified the figure was even higher. Trump had not accounted for an earlier 20 per cent tariff placed on China. So the real figure was 145 per cent.

One-hundred-and-forty-five per cent tariffs — if someone had said six months ago that the US would hit China with 145 per cent tariffs, few would have believed them.

But then, few would have believed that a US president would question the legitimacy of Canada, saying its border with the US is questionable; and few would have thought that a US president would talk about taking Greenland, by force if necessary; and few would have thought that a US president would have suggested turning Gaza, bombed by Israeli and US bombs into rubble and a humanitarian crisis, into an up-market real-estate opportunity.

But back to toasters. 

If Trump imposes 145 per cent tax on all Chinese goods entering the US, he's just bequeathed to Americans the world's most expensive toasters.

French newspaper Le Monde reported that last year, Americans spent $US144 million ($234 million) on toasters — 99 per cent of which were made in China.

Americans don't make toasters because the cost of their workers is so high that they would have to sell them for 10 times the current prices to make a profit. That's simply not practicable.

And then there are toys. About 80 per cent of toys imported into the US come from China, according to industry group the Toy Association.

According to Associated Press, the Toy Association says that due to the Trump tariffs, price increases of 15 to 20 per cent are expected on games, dolls, cars and other toys. 

It reported that Americans were very particular about the price they were generally prepared to pay for a toy — between $US4.99 and $US19.99.

An increase of up to 20 per cent due to the Trump tariffs would wreak havoc on the toy market.

And then there are iPhones. Although Californian based, Apple relies on supply chains around the world to make these phones — the parts for an iPhone are sourced from as many as 43 countries.

Reports suggest that about 85 per cent of iPhones are assembled in China, 13 per cent in India and 2 per cent in Brazil. 

Currently, an iPhone costs about $US846 in the US. If assembled in the US it would cost approximately $US2,300.

With tariffs causing all sorts of unknown price increases in different markets, the cumulative added costs could lead to a significant increase in the price of a good that has become a daily part of the US workplace and home.

"No-one wins a trade war," said Hugh White. 

"But in the longer term, China has a better chance of finding new markets than America does of replacing what it imports from China with home-grown products of comparable price and quality.

"So the long-term damage to the US economy of a protracted trade war will be greater. Overall, I would not count on China blinking first."

Professor White told the ABC that in crude balance of trade terms, China depends more on exports to the US than vice versa — so it looks like China has more to lose as the barriers to two-way trade go up.

"But then Beijing is better placed than Washington to manage the domestic political pain that flows from the economic consequences of any trade war, so it may have more power to go in hard," he said.

Old alliances reassessed

The Trump revolution is in full swing. 

Even if he has dialled back his grand tariffs plan significantly, Trump has already forced countries around the globe to reassess the world as they knew it.

In defence terms, Trump's withdrawal of military aid and US intelligence from Ukraine for one week — because he did not like the attitude of Ukrainian President Volodymyr Zelensky at the famous White House meeting — has made European countries begin discussing a military alliance without the US.

In other words, a NATO without the US.

In trade terms, the last week of turmoil and uncertainty has forced countries to reassess their long-held trade alliances. 

Two of the US's closest strategic and trade allies — Japan and South Korea — have recently begun talking to China about the formation of a new trilateral trade agreement.

If ever proof was needed as to how the world as we knew it since 1945 has changed, it's that two of Washington's most trusted friends are now considering a formal alliance with the US' number one strategic enemy.

Countries such as South Korea and Japan have decided to split their security interests from their trade interests. 

No other country has invested as heavily in South Korea's security, as it lives next to its enemy North Korea, than the US. 

Yet here is South Korea deciding to examine a trade alliance with China, North Korea's main patron.

Trump, among other things, has turned the world as we knew it on its head.

There are early indications that he is pushing his allies away from the US and towards China.

While China will suffer from the new tariff regime — as will American consumers — longer term, China may emerge as the big winner of the Trump revolution.

"Trump's tariffs offer China a huge diplomatic and strategic opportunity, and quite possibly economic opportunities too, as America's credibility as an economic partner, strategic ally and global leader is trashed," said Professor White. 

"That image of the Chinese, Japanese and South Korean ministers linking hands is very resonant.

"For some time now, Washington has been implicitly, and often explicitly, [demanding] third countries, including Australia, make a choice between America or China as economic and technological partners." 

Professor White says the Trump tariffs will make it much harder for the US to convince countries to choose America, especially when China has more and more to offer technologically as well.

"And of course they seriously undermine US credibility as a strategic partner too," he said. 

"I think last week's announcement marks the point at which Washington gave up even trying to win South-East Asia's support in the contest with China for regional influence. It has conceded the South-East Asians to China."

'They are not stupid, unlike the present mob in Washington'

So how much ability does China have to escalate this tariff trade war if it decides on that course?

"My hunch is that the Chinese will match Washington but not escalate themselves. They are not stupid, unlike the present mob in Washington," says Hugh White. 

Geoff Rab says for the Chinese leadership, there would be no surprises in Washington's new tariff regime.

"They have long anticipated this and have been building resilience," he said.

"But the US still accounts for about 15 per cent of total goods exports from China so it is important." 

He says China has been expanding exports to other markets, including the Global South —  countries usually described as "developing," "less developed" or "underdeveloped". 

"Beijing certainly won't like [the new tariff structure], but it is not a hammer blow to the economy. Nevertheless, it comes at a time when Beijing is struggling to stimulate domestic consumer demand as the wealth effects of the shake out of the property sector harm consumer sentiment. This will further harm consumer sentiment," he said.

According to Mr Raby, if China is relatively more open and the US more closed, then some trade diversion will inevitably occur. The problem, he says, is that at present, China's own growth is not that robust, so demand is relatively weak.

He says for the American consumer, if this course is maintained, it will mean higher prices and lower growth.

So where does all this end? 

"With Trump navigating some messy diversion and relaxation based on numerous bilateral deals where he can say the US has won," said Mr Raby. 

"It is the end of the multilateral rules-based system of the WTO where the fundamental principle is 'non-discrimination'."

As to China's pledge that it will fight the US "till the end" if need be, Mr Raby describes this as "nationalist rhetoric aimed at the domestic audience".

But he adds: "China's approach has been reasonably balanced because it in fact has few options."

"It is not what others, including China, might do to the US," he said.