Trump thinks he has a strong hand. In fact, Washington is far more vulnerable than Beijing.China’s leaders sound supremely confident that they can win a trade war with President Trump.

When you’re already $500 Billion DOWN, you can’t lose!” U.S. President Donald Trump tweeted on April 4. He seems to believe that because the United States has a huge trade deficit with China — actually $337 billion in 2017, not $500 billion — he is bound to win the impending trade war between the two countries. But even though China sells more to America than it buys in return, Beijing’s position is actually much stronger, both economically and politically, than that crude calculus suggests.

Economically, both the United States and China would lose from a trade war. Punitive tariffs would push up import prices, dent exports, cost jobs, and crimp economic growth, so both sides would do best to avoid an outbreak of hostilities. But now that the Trump administration is threatening to impose 25 percent tariffs on $46 billion of U.S. imports from China and China has responded in kind, a trade war looms. Trump has since raised the stakes by threatening tariffs on a further $100 billion of imports (so far unspecified), which Beijing promptly said it would match. Trump’s calculation appears to be that China has more to lose and so will back down. He is wrong.

Headline statistics greatly overstate China’s economic vulnerability — and understate America’s. Focusing on trade in goods, as most observers do, U.S. imports from China last year totaled $506 billion, nearly four times its exports in the other direction ($131 billion). But the United States also sold $38 billion more in services to China than it bought in return, its biggest bilateral surplus. And whereas U.S. goods exports to China are mostly agricultural produce and finished products consisting of mostly American content and sold by U.S. firms, China’s exports to the United States are typically Chinese-assembled goods that contain many foreign parts and components — and are often American-branded to boot. A further 37 percent of U.S. imports from China consist of parts and components on which U.S.-based manufacturers rely.

Take Apple’s iPhone. When iPhones are shipped from Chinese factories to the United States, the full import cost is attributed to China. Yet these phones include a Samsung display from South Korea, a Toshiba memory chip from Japan, and many other foreign components. According to one estimate, assembly in China accounts for only 3-6 percent of the $370 manufacturing cost of an iPhone X. Since that smartphone retails for $999, the bulk of the value added is American: Apple’s margin and that of U.S. retailers.

Admittedly, that is an extreme example, and Trump isn’t yet targeting iPhone imports. So, consider instead the $46 billion in imports that Trump is threatening, of which $26 billion are electronic goods. Ostensibly designed to stymie the Chinese government’s Made in China 2025 drive to develop its own high-tech products, his tariffs would mainly affect lower-tech products that China actually exports to America right now. And according to estimates by the Organization for Economic Cooperation and Development (OECD), nearly half of the content of Chinese exports of computer, electronic, and optical equipment to United States is foreign. (The latest data is from 2011, so that proportion may have shifted somewhat since.) Even if the proposed tariffs were to slash China’s exports of these products by a quarter, the direct hit to China would be $6.5 billion — roughly 0.05 percent of the country’s GDP. For an economy growing at 6.8 percent per year, that would be a pin prick.

Even a blanket U.S. tariff on all Chinese goods exports — iPhones and all — would be bearable for China. The OECD reckons that around a third of the content of U.S. imports from China is actually of foreign origin. So the Chinese value added of its exports to the United States is perhaps $329 billion — some 2.7 percent of China’s $12 trillion economy. So even if a blanket Trump tariff slashed China’s exports to the United States by 25 percent, the direct hit to GDP would be 0.7 percent. That would hurt. But it would still leave the Chinese economy growing at 6.1 percent a year.

It is very unlikely to come to that, precisely because the United States is much more vulnerable to a trade war than Trump thinks. Imagine the consumer uproar if Trump slapped a tariff on iPhones! Indeed, because so many U.S. firms outsource production to China, they are acutely vulnerable to dirty Chinese tricks, such as halting production for a while on spurious regulatory grounds.

The threat isn’t just to American-branded products that American consumers love. A trade war also poses a threat to U.S.-based manufacturers that rely on Chinese parts and components to be globally competitive. Trump’s $46 billion list already targets aircraft propellers, machine tools, and other intermediate goods. Pushing up their costs would threaten manufacturing jobs in America’s heartland. And while those tariffs avoid consumer staples such as clothing and footwear, they will inflate the prices of some consumer goods, such as televisions and dishwashers.

In contrast, China’s potential retaliation is much better targeted. First in line is $16 billion of U.S. civilian aircraft exports. Boeing’s share price slumped when the Chinese move was announced. But Chinese airlines are expanding so fast that Boeing may be willing to slash prices to hang on to sales there, in which case none of the cost of the tariffs would fall on China. And if push comes to shove, the Chinese already have a reliable alternative supplier: Europe’s Airbus.

Second in line is $12.8 billion of U.S. soybean exports. China accounts for more than half of American soybean exports, giving it market power. Indeed, as talk of a trade war heated up, the hit to U.S. farmers was immediate: Soybean prices plunged. Here, too, China has an alternative supplier: Brazil.

In short, the United States’ trade deficit with China — which is actually perhaps only $200 billion in value-added terms — scarcely gives it an advantage.

China also has much more scope to mitigate any economic damage than the Trump administration does. Unlike the U.S. Federal Reserve, China’s central bank is not independent, so the People’s Bank of China can be ordered to cut interest rates to boost domestic demand if necessary. State-owned banks can likewise be told to extend more credit. And while China has allowed its currency to appreciate against the dollar considerably since Trump took office, it could nudge the renminbi down instead, making Chinese exports more competitive.

The Chinese government also has a much healthier fiscal position and is free to compensate any industries harmed by a trade war. By contrast, the U.S. government is facing a large budget deficit of some 4 percent of GDP that is set to rise in the next few years. Any further spending would require congressional approval, which may not be forthcoming.

Finally, the Chinese government can absorb the political costs of a trade war much more easily than the Trump administration can. Every time Trump lashes out at China, U.S. stock markets plunge. That is particularly problematic for a president who treats the Dow Jones industrial average as his personal approval rating, especially because the single biggest constituent of the Dow is Boeing. Because the president has tied himself to the Dow, every time stocks fall, the Trump administration feels compelled to reassure markets that it is seeking a negotiated solution to the trade conflict, a move that undercuts its leverage.

With midterm elections coming up in November, the Republicans are particularly vulnerable politically. China is capitalizing on that by targeting products such as soybeans that are mostly produced in Trump-supporting states in the Midwest. It is no coincidence that China also plans to retaliate against U.S. whiskey exports, which come mostly from Kentucky, the home state of Senate Majority Leader Mitch McConnell.

On top of all that, Trump doesn’t seem to have a strategy. An international alliance would be more effective in pressuring China to open its markets and respect foreign intellectual property rights than going it alone. Last year, the United States, the European Union, and Japan agreed to make common cause on this. But Trump has now alienated those allies by slapping tariffs on Japan’s steel and aluminum exports on bogus national security grounds and threatening to do the same to EU allies. Since his threatened tariffs against China would also hit its foreign suppliers, notably in Asia, that further undermines any potential for a united front.

Trump has made matters worse by acting unilaterally against China in a way that would appear to breach World Trade Organization rules. Indeed, potential allies find Trump’s America First rhetoric repulsive. All this has given China the political high ground — “China doesn’t want a trade war, but we’re not afraid to fight a trade war” has become Beijing’s official line.

He has opted for a solo fight against a smarter, more patient, and more resilient adversary. So far, this is mostly political theater. But since Trump is overestimating his leverage and underestimating Chinese resolve, there is a real danger that the conflict will escalate.

Since Chinese officials are smarter than Trump, they will also doubtless offer him cosmetic concessions that they would be happy to give anyway. An obvious win-win would be to buy more U.S. liquefied natural gas. Judging by his response on Twitter, Trump was fooled by the so-called concessions announced by Chinese President Xi Jinping at the Boao Forum for Asia on April 10 that consisted of previous economic reform announcements repackaged for Trump’s ears. With luck, that will allow Trump to climb down while claiming victory.

In any case, China can afford to play for time. Voters may elect a Democratic Congress that will clip Trump’s wings next year; they could also vote him out of office in 2020. Xi isn’t worried about re-election.

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